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

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  • Anthony D. Hall

    (School of Finance and Economics, University of Technology, Sydney)

  • Nikolaus Hautsch

    (Institute of Economics, University of Copenhagen)

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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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics. Finance Research Unit in its series FRU Working Papers with number 2004/03.

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Length: 21 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:kud:kuiefr:200403

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

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References

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Citations

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Cited by:
  1. 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.
  2. Charles Cao & Oliver Hansch & Xiaoxin Wang, 2008. "Order Placement Strategies In A Pure Limit Order Book Market," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 31(2), pages 113-140.
  3. Asani Sarkar & Robert A. Schwartz, 2007. "Market sidedness: insights into motives for trade initiation," Staff Reports 292, Federal Reserve Bank of New York.
  4. Anthony D. Hall & Nikolaus Hautsch, 2004. "Order Aggressiveness and Order Book Dynamics," FRU Working Papers 2005/04, University of Copenhagen. Department of Economics. Finance Research Unit.

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