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arXiv · 1907.06230

Multi-Level Order-Flow Imbalance in a Limit Order Book

Ke Xu·Martin D. Gould·Sam D. Howison
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Abstract

We study the multi-level order-flow imbalance (MLOFI), which is a vector quantity that measures the net flow of buy and sell orders at different price levels in a limit order book (LOB). Using a recent, high-quality data set for 6 liquid stocks on Nasdaq, we fit a simple, linear relationship between MLOFI and the contemporaneous change in mid-price. For all 6 stocks that we study, we find that the out-of-sample goodness-of-fit of the relationship improves with each additional price level that we include in the MLOFI vector. Our results underline how order-flow activity deep into the LOB can influence the price-formation process.

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BibTeXRIS

Ke Xu, Martin D. Gould, Sam D. Howison. 2019-07-14. Multi-Level Order-Flow Imbalance in a Limit Order Book. https://arxiv.org/abs/1907.06230

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