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Volatility and the role of order book structure

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  • Ralf Becker

    ()
    (University Manchester)

  • Adam Clements

    ()
    (QUT)

Abstract

There is much literature that deals with modeling and forecasting asset return volatility. However, much of this research does not attempt to explain variations in the level of volatility. Movements in volatility are often linked to trading volume or frequency, as a reflection of underlying information flow. This paper considers whether the state of an open limit order book influences volatility. It is found that market depth and order imbalance do influence volatility, even in the presence of the traditional volume related variables.

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File URL: http://www.ncer.edu.au/papers/documents/WPNo64.pdf
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Bibliographic Info

Paper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 64.

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Length: 13 pages
Date of creation: 19 Oct 2010
Date of revision:
Handle: RePEc:qut:auncer:2010_11

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Related research

Keywords: Realized volatility; bi-power variation; limit order book; market microstructure; order imbalance;

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  1. Ser-Huang Poon & Clive W.J. Granger, 2003. "Forecasting Volatility in Financial Markets: A Review," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 478-539, June.
  2. Lee, Charles M C & Ready, Mark J, 1991. " Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-46, June.
  3. Roberto Pascual & David Veredas, 2010. "Does the Open Limit Order Book Matter in Explaining Informational Volatility?," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 8(1), pages 57-87, Winter.
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