Statistical identification with hidden Markov models of large order splitting strategies in an equity market

Large trades in a financial market are usually split into smaller parts and traded incrementally over extended periods of time. We address these large trades as hidden orders. In order to identify and characterize hidden orders we fit hidden Markov models to the time series of the sign of the tick by tick inventory variation of market members of the Spanish Stock Exchange. Our methodology probabilistically detects trading sequences, which are characterized by a net majority of buy or sell transactions. We interpret these patches of sequential buying or selling transactions as proxies of the traded hidden orders. We find that the time, volume and number of transactions size distributions of …

Specialization and herding behavior of trading firms in a financial market

Agent-based models of financial markets usually make assumptions about agent’s preferred stylized strategies. Empirical validations of these assumptions have not been performed so far on a full-market scale. Here we present a comprehensive study of the resulting strategies followed by the firms which are members of the Spanish Stock Exchange. We are able to show that they can be characterized by a resulting strategy and classified in three well- defined groups of firms. Firms of the first group have a change of inventory of the traded stock which is positively correlated with the synchronous stock return whereas firms of the second group show a negative correlation. Firms of the third group…

Market Impact and Trading Profile of Hidden Orders in Stock Markets

We empirically study the market impact of trading orders. We are specifically interested in large trading orders that are executed incrementally, which we call hidden orders. These are statistically reconstructed based on information about market member codes using data from the Spanish Stock Market and the London Stock Exchange. We find that market impact is strongly concave, approximately increasing as the square root of order size. Furthermore, as a given order is executed, the impact grows in time according to a power law; after the order is finished, it reverts to a level of about 0.5-0.7 of its value at its peak. We observe that hidden orders are executed at a rate that more or less m…

Surface-barrier effects in the microwave second-harmonic response of superconductors in the mixed state

We report on transient effects in the microwave second-harmonic response of different type of superconductors in the mixed state. The samples have contemporarily been exposed to a dc magnetic field, varying with a constant rate of 60 Oe/s, and a pulsed microwave magnetic field. The time evolution of the signal radiated at the second-harmonic frequency of the driving field has been measured for about 500 s from the instant in which the dc-field sweep has been stopped, with sampling time of ∼0.3 s. We show that the second-harmonic signal exhibits two relaxation regimes; an initial exponential decay, which endures roughly 10 s, and a logarithmic decay in the time scale of minutes. Evidence is …

Time evolution of the microwave second-harmonic response of MgB2 superconductor

We report on transient effects in the microwave second-order response of two ceramic MgB2 samples. The time evolution of the second-harmonic signal is investigated for about 500 s after the sample has been exposed to a variation of the dc magnetic field. We suggest that during the first seconds the response is determined by diffusive motion of fluxons, while in the time scale of minutes it is ruled by magnetic relaxation over the surface barrier.

Trading activity and price impact in parallel markets: SETS vs. off-book market at the London Stock Exchange

We empirically study the trading activity in the electronic on-book segment and in the dealership off-book segment of the London Stock Exchange, investigating separately the trading of active market members and of other market participants which are non-members. We find that (i) the volume distribution of off-book transactions has a significantly fatter tail than the one of on-book transactions, (ii) groups of members and non-members can be classified in categories according to their trading profile (iii) there is a strong anticorrelation between the daily inventory variation of a market member due to the on-book market transactions and inventory variation due to the off-book market transac…

Surface-Barrier Effects in the Microwave Second Order Response of Superconductors

Scaling laws of strategic behavior and size heterogeneity in agent dynamics

The dynamics of many socioeconomic systems is determined by the decision making process of agents. The decision process depends on agent's characteristics, such as preferences, risk aversion, behavioral biases, etc.. In addition, in some systems the size of agents can be highly heterogeneous leading to very different impacts of agents on the system dynamics. The large size of some agents poses challenging problems to agents who want to control their impact, either by forcing the system in a given direction or by hiding their intentionality. Here we consider the financial market as a model system, and we study empirically how agents strategically adjust the properties of large orders in orde…