Price response functions and spread impact in correlated financial markets¶
In this study, we analyzed trades and quotes (TAQ) data from the NASDAQ Stock Market.
In the TAQ data set, there are two data files for each stock. One gives the list of all successive quotes. Thus, we have the best bid price, best ask price, available volume and the time stamp accurate to the second. The other data file is the list of all successive trades, with the traded price, traded volume and time stamp accurate to the second. Despite the one second accuracy of the time stamps, in both files more than one quote or trade may be recorded in the same second.
In order to avoid overnight effects and any artifact due to the opening and closing of the market, we systematically discarded the first ten and the last ten minutes of trading in a given day. Therefore, we only consider trades of the same day from 9:40:00 to 15:50:00 New York local time. We will refer to this interval of time as the “market time”.
The main objective of this work is to analyze the response functions. In general we define the self- and cross-response functions in a correlated financial market as
In the following can be seen the documentation of all the code used in the project.