School of Business Management, NMIMS University, Mumbai, India
Corresponding author: Sudhanshu Pani, School of Business Management, NMIMS University, Mumbai - 400 056, India. Tel: +91-022-42355886, E-mail: [email protected].
Abstract: The pattern of dependence between liquidity, durations (orders and trades) and bid-ask spreads in a limit order market are examined in high resolution invoking copulas and graph theory. Using intraday data from a sample of NASDAQ 100 stocks and an experimental design, we study the information pathways in markets in the presence of algorithmic traders. Our results confirm that multivariate analysis is more appropriate to investigate these information pathways. We observe that the strength and nature of the dependence between variables vary through the trading day. We confirm the existence of stylised aspects of algorithmic trading, such as tail dependence in trade durations, a balance between buy and sell side in order durations, liquidity and bid-ask spreads, and the bid-ask spread and liquidity trade-off in the dependence structure.
Keywords: High resolution, Limit order markets, Durations, Liquidity, Bid-Ask Spread, Algorithmic trading, Pair copula construction