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Anthony D. Hall . Nikolaus Hautsch
Order aggressiveness and order book
dynamics
Abstract In this paper, we study the determinants of order aggressiveness and
traders’ order submission strategy in an open limit order book market. Applying an
order classification scheme, we model the most aggressive market orders, limit
orders as well as cancellations on both sides of the market employing a sixdimensional
autoregressive conditional intensity model. Using order book data
from the Australian Stock Exchange, we find that market depth, the queued
volume, the bid-ask spread, recent volatility, as well as recent changes in both the
order flow and the price play an important role in explaining the determinants of
order aggressiveness. Overall, our empirical results broadly confirm theoretical
predictions on limit order book trading. However, we also find evidence for
behavior that can be attributed to particular liquidity and volatility effects.
Keywords Open limit order book . Aggressive market orders . Aggressive limit
orders and cancellations . Multivariate intensity
JEL Classification G14 . C32 . C41
1 Introduction
Limit order book data provide the maximum amount of information about financial
markets at the lowest aggregation level. A theme in the recent literature is to obtain
a better understanding of all of the aspects of a trader’s fundamental decision
problem: when to submit an order; which type of order to submit; and, on which
side of the market to submit the order.
A. D. Hall
School of Finance and Economics, University of Technology, Sydney, Australia
N. Hautsch (*)
Department of Economics, University of Copenhagen, Studiestraede 6, 1455
Copenhagen-K, Denmark
E-mail: Nikolaus.Hautsch@econ.ku.dk