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A Continuous-Time Measurement of the Buy-Sell Pressure in a Limit Order Book Market

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Author Info
Anthony D. Hall (University of Technology, Sidney)
Nikolaus Hautsch (Institute of Economics, University of Copenhagen)

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Abstract

In this paper, we investigate the buy and sell arrival process in a limit order book market. Using an intensity framework allows to estimate the simultaneous buy and sell intensity and to derive a continuous-time measure for the buy-sell pressure in the market. Based on limit order book data from the Australian Stock Exchange (ASX), we show that the buy-sell pressure is particularly influenced by recent market and limit orders and the current depth in the ask and bid queue. We find evidence for the hypothesis that traders use order book information in order to infer from the price setting behavior of market participants. Furthermore, our results indicate that the buy-sell pressure is clearly predictable and is a significant determinant of trade-to-trade returns and volatility.

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Publisher Info
Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 04-07.

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Length: 38 pages
Date of creation: Mar 2004
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Handle: RePEc:kud:kuiedp:0407

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Related research
Keywords: buy and sell arrival process order book information market depth bivariate autoregressive intensity model buy-sell excess intensity

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Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  13. Biais, Bruno & Hillion, Pierre & Spatt, Chester, 1995. " An Empirical Analysis of the Limit Order Book and the Order Flow in the Paris Bourse," Journal of Finance, American Finance Association, vol. 50(5), pages 1655-89, December. [Downloadable!] (restricted)
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    Other versions:
  16. Seppi, Duane J, 1997. "Liquidity Provision with Limit Orders and a Strategic Specialist," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 10(1), pages 103-50.
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    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Asani Sarkar & Robert A. Schwartz, 2006. "Two-sided markets and intertemporal trade clustering: insights into trading motives," Staff Reports 246, Federal Reserve Bank of New York. [Downloadable!]
  2. Asani Sarkar & Robert A. Schwartz, 2007. "Market sidedness: insights into motives for trade initiation," Staff Reports 292, Federal Reserve Bank of New York. [Downloadable!]
  3. Clive G. Bowsher, 2005. "Modelling Security Market Events in Continuous Time: Intensity Based, Multivariate Point Process Models," Economics Papers 2005-W26, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
    Other versions:
  4. Anthony Hall & Nikolaus Hautsch, 2006. "Order aggressiveness and order book dynamics," Empirical Economics, Springer, vol. 30(4), pages 973-1005, January. [Downloadable!] (restricted)
    Other versions:
  5. Valeri Voev, 2006. "A Trade-by-Trade Surprise Measure and Its Relation to Observed Spreadson the NYSE," CoFE Discussion Paper 06-03, Center of Finance and Econometrics, University of Konstanz. [Downloadable!]
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