Does the Open Limit Order Book Reveal Information About Short-run Stock Price Movements?
AbstractThis paper empirically tests whether an open limit order book contains information about future short-run stock price movements. To account for the discrete nature of price changes, the integer-valued autoregressive model of order one is utilized. A model transformation has an advantage over conventional count data approaches since it handles negative integer-valued price changes. The empirical results reveal that measures capturing offered quantities of a share at the best bid- and ask-price reveal more information about future short-run price movements than measures capturing the quantities offered at prices below and above. Imbalance and changes in offered quantities at prices below and above the best bid- and ask-price do, however, have a small and significant effect on future price changes. The results also indicate that the value of order book information is short-term.
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Bibliographic InfoPaper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 687.
Length: 26 pages
Date of creation: 24 Aug 2006
Date of revision:
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Negative integer-valued data; time series; INAR; finance; stock price; open limit order book;
Find related papers by JEL classification:
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-03 (All new papers)
- NEP-CFN-2006-09-03 (Corporate Finance)
- NEP-FIN-2006-09-03 (Finance)
- NEP-FMK-2006-09-03 (Financial Markets)
- NEP-MST-2006-09-03 (Market Microstructure)
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