Analysis of order book dynamics in the Japanese stock market using the Queue-Reactive Hawkes process

Abstract

We examine the effects of various types of orders and order book states on stock price formation in the Japanese stock market. For the purpose, we use the Queue-Reactive Hawkes (QRH) process to model the order book dynamics since the QRH process can reflect the influence of order book states as well as self-excitation and/or mutual excitation of past orders on the arrival intensities of next orders. As a result, we observe whether the mid price moves or not strongly depends on the order book state.