RP8: Order Books Dynamics and Announcement Effects during Financial Crisis (WP3)


Information arrivals are of particular interest in finance. This project studies how announcements are related to the fundamental order book process. The objective is to provide empirical evidence and to model the determinants of order book dynamics and information asymmetry around information shocks and during a financial crisis. Secondly, given that there are investors who may take the advantage of inside information before its publication, the objective is to spot inside-traders’ proactive actions from high-frequency order book data. These topics will be addressed by using extensive data sets over the recent financial crisis and by introducing a new class of limit order book models with infinite-activity time-changed Lévy processes that can capture variation in the business activity. Though some prominent researchers have recently addressed some questions about liquidity available in the Treasury order book markets at news arrivals (see Engle et al. 2012 and references therein), liquidity at information shocks has not been studied in depth with data from Equity markets–perhaps because of the technical challenges of managing massive stock order book data sets. This research project fills this gap by using ultra high-frequency limit order book data from Nordic and US Nasdaq.

The project provides a framework that can be used to (i) study the liquidity dynamics around information arrivals to help the scientific community to develop reliable and robust models and theories for order book markets and (ii) seek evidence of information leakage before public news announcement to identify abnormalities in the order flow caused by information leakage, which serves as a tool not only in trading and risk management but also in financial supervision.

Early Stage Resercher working on the project: Martin Magris

Supervisor: Professor Juho Kanniainen, Tampere University of Technology / juho.kanniainen(at)tut.fi

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