Price Dynamics in an Order-Driven Market with Bayesian Learning

Abstract EN

In this paper, we have developed a model of limit order book with learning mechanism and investigated its price dynamics.

In this model, continuous Bayesian learning is introduced to describe the dynamics of self-adjusting learning mechanism of agents, which can result in some important stylized facts of limit order markets.

This study also provides some behavioral explanations for these well-known stylized facts that are commonly observed in the financial markets.