Oct

23

Doyne FarmerA recent paper by Doyne Farmer and Ilija Zovko of the Santa Fe Institute shows what I believe is an incredibly interesting approach to diagramming the ecology of the markets, a phrase that has often arise on Daily Speculations.

While I find the conclusions and statistical work not particularly interesting, the research approach in the beginning of the paper is fascinating. The authors look at coded order flow on the LSE and categorize each player on an hourly basis as either a net seller, buyer, or inactive. Then they plot that behaviour for all eligible periods during a month and see what the plots of this behaviour look like on a case by case basis.

Next they look at correlations in a given period between groups of buyers and sellers (for example, do the same groups always sell at the same time, and do they always sell to the same counterparties?). Their conclusions because of constraints upon their data (actually what they can share of their data, as they note briefly) are not particularly enlightening but the extension of this approach if one could secure the data seems a treasure trove of potential research.

How valuable it would be to have these plots, for example for the 50 biggest player in a given stock!


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