The Price Impact of Order Book Events

@article{Cont2012ThePI,
  title={The Price Impact of Order Book Events},
  author={Rama Cont and Arseniy Kukanov and Sasha Stoikov},
  journal={Econometrics: Applied Econometrics \& Modeling eJournal},
  year={2012}
}
We study the price impact of order book events - limit orders, market orders and cancelations - using the NYSE TAQ data for 50 U.S. stocks. We show that, over short time intervals, price changes are mainly driven by the order flow imbalance, defined as the imbalance between supply and demand at the best bid and ask prices. Our study reveals a linear relation between order flow imbalance and price changes, with a slope inversely proportional to the market depth. These results are shown to be… 
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References

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