Analysis of Short-term Price Behavior and Trading Volume under Continuous Double Auction Mechanism in Limit Order Markets

摘要

In this paper, we establish a theoretical model to describe the dynamics of the short-term price and the trading volume under continuous double auction mechanism in limit order markets. By the analysis of some relevant characteristic variables including the best (highest) bid, best (lowest) ask, bid-ask spread, transaction price, transaction probability, we reveal the short-term price behavior under continuous double auction mechanism, and we emphasize the discussion of its equilibrium properties including the competitive equilibrium it converges to and corresponding elapsed time. The results corroborate the relevant conclusions of which continuous double auction can converge rapidly to the competitive equilibrium and then produce high efficiency of price discovery. Additionally, we examine the formation process and statistical properties (including the mean, variance, and realized value) of the buy side cumulative trading volume, sell side cumulative trading vo lume and total cumulative volume under continuous double auction mechanism by means of mathematical modeling based on Poisson order flow process, and do some corresponding comparative statics and numerical simulation on the factors that would influence these three trading volume aforementioned.