Information, Sentiment, and Price in a Fast Order-Driven Market

The IUP Journal of Financial Risk Management, Vol. VIII, No. 3, September 2011, pp. 43-75

Posted: 6 Jul 2012

See all articles by Alexis Derviz

Alexis Derviz

Czech National Bank (CNB) - Monetary Department

Date Written: July 6, 2012

Abstract

The paper models an order-driven market in which many traders with heterogeneous private values and information submit limit and market orders simultaneously. Order execution is partially random. There may be a bias in the traders’ prior beliefs (market sentiment). In this environment, although market buys and sells depend monotonically on the degree of bullish sentiment, market order flows are in a non-monotonous relationship with the proportion of high private value traders (bulls). Additionally, sentiment has a stronger effect on volume and net direction of trades leading to a given central price, than the actual distribution of private values.

Suggested Citation

Derviz, Alexis, Information, Sentiment, and Price in a Fast Order-Driven Market (July 6, 2012). The IUP Journal of Financial Risk Management, Vol. VIII, No. 3, September 2011, pp. 43-75, Available at SSRN: https://ssrn.com/abstract=2101526

Alexis Derviz (Contact Author)

Czech National Bank (CNB) - Monetary Department ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

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