The market nanostructure origin of asset price time reversal asymmetry

Marcus Cordi (1) , Damien Challet (1) , Serge Kassibrakis

1 MICS - Mathématiques et Informatique pour la Complexité et les Systèmes

We introduce a framework to infer lead-lag networks between the states of elements of complex systems, determined at different timescales. As such networks encode the causal structure of a system, infering lead-lag networks for many pairs of timescales provides a global picture of the mutual influence between timescales. We apply our method to two trader-resolved FX data sets and document strong and complex asymmetric influence of timescales on the structure of lead-lag networks. Expectedly, this asymmetry extends to trader activity: for institutional clients in our dataset, past activity on timescales longer than 3 hours is more correlated with future activity at shorter timescales than the opposite (Zumbach effect), while a reverse Zumbach effect is found for past timescales shorter than 3 hours; retail clients have a totally different, and much more intricate, structure of asymmetric timescale influence. The causality structures are clearly caused by markedly different behaviors of the two types of traders. Hence, market nano-structure, i.e., market dynamics at the individual trader level, provides an unprecedented insight into the causality structure of financial markets, which is much more complex than previously thought.

Domaines: Finance quantitative [q-fin.CP]; Econométrie de la finance [q-fin.ST]; Microstructure des marchés [q-fin.TR]

Marcus Cordi, Damien Challet, Serge Kassibrakis. The market nanostructure origin of asset price time reversal asymmetry. SSRN : Social Science Research Network, 2018, ⟨10.2139/ssrn.3309170⟩. ⟨hal-01966419⟩