Agent-based model of information diffusion in the limit order book trading

ArXiv ID: 2508.20672 “View on arXiv”

Authors: Mateusz Wilinski, Juho Kanniainen

Abstract

There are multiple explanations for stylized facts in high-frequency trading, including adaptive and informed agents, many of which have been studied through agent-based models. This paper investigates an alternative explanation by examining whether, and under what circumstances, interactions between traders placing limit order book messages can reproduce stylized facts, and what forms of interaction are required. While the agent-based modeling literature has introduced interconnected agents on networks, little attention has been paid to whether specific trading network topologies can generate stylized facts in limit order book markets. In our model, agents are strictly zero-intelligence, with no fundamental knowledge or chartist-like strategies, so that the role of network topology can be isolated. We find that scale-free connectivity between agents reproduces stylized facts observed in markets, whereas no-interaction does not. Our experiments show that regular lattices and Erdos-Renyi networks are not significantly different from the no-interaction baseline. Thus, we provide a completely new, potentially complementary, explanation for the emergence of stylized facts.

Keywords: Agent-Based Modeling, Limit Order Book, Network Topology, Zero-Intelligence Agents, Market Microstructure, Equities

Complexity vs Empirical Score

• Math Complexity: 3.0/10
• Empirical Rigor: 4.0/10
• Quadrant: Philosophers
• Why: The paper introduces an agent-based model with clear conceptual structure but relies on relatively simple statistical mechanics (exponential and log-normal distributions) rather than dense mathematical derivations. Its empirical rigor is limited as it presents a simulation study rather than backtesting against live market data, and the implementation details (like network topologies) are described but not fully operationalized for trading.

  flowchart TD
    A["Research Goal: Can network topology<br>explain stylized facts in LOB?<br>Zero-intelligence agents only"] --> B["Input: Network Topologies"]
    B --> C["Zero-Intelligence Agent Model"]
    D["Scale-Free Network"] --> C
    E["No-Interaction Baseline"] --> C
    F["Erdos-Renyi / Regular Lattice"] --> C
    C --> G["Simulation: Limit Order Book Trading"]
    G --> H{"Outcome Analysis"}
    H --> I["Scale-Free: Reproduces<br>stylized facts"]
    H --> J["Other Networks / No-Interaction:<br>No significant difference"]