Queueing Dynamics and State Space Collapse in Fragmented Limit Order Book Markets
Keyword(s):
In modern equity markets, participants have a choice of many exchanges at which to trade, each of which typically operates as an electronic limit order book. This paper analyzes this setting as a multiclass queueing system. Taking into account the effect of investors’ order-routing decisions across exchanges, they find that the equilibrium of this decentralized market exhibits a state space collapse property, whereby the queues at different exchanges are coupled, and the overall behavior of the market is captured through a one-dimensional process that can be viewed as a weighted aggregate queue length across all exchanges. The key driver of this coupling phenomenon is anticipated delay as opposed to the queue lengths themselves.
2020 ◽
Vol 136
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pp. 183-189
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Keyword(s):
2005 ◽
Vol 8
(1)
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pp. 25-67
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Keyword(s):