Advanced Search
MyIDEAS: Login to save this paper or follow this series

Limit order books and trade informativeness

Contents:

Author Info

  • Beltran-Lopez, Hélena
  • Grammig, Joachim G.
  • Menkveld, Albert J.

Abstract

In the microstructure literature, information asymmetry is an important determinant of market liquidity. The classic setting is that uninformed dedicated liquidity suppliers charge price concessions when incoming market orders are likely to be informationally motivated. In limit order book markets, however, this relationship is less clear, as market participants can switch roles, and freely choose to immediately demand or patiently supply liquidity by submitting either market or limit orders. We study the importance of information asymmetry in limit order books based on a recent sample of thirty German DAX stocks. We find that Hasbrouck's (1991) measure of trade informativeness Granger-causes book liquidity, in particular that required to fill large market orders. Picking-off risk due to public news induced volatility is more important for top-of-the book liquidity supply. In our multivariate analysis we control for volatility, trading volume, trading intensity and order imbalance to isolate the effect of trade informativeness on book liquidity. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econstor.eu/bitstream/10419/57358/1/654217386.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2011/09.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:zbw:cfswop:201109

Contact details of provider:
Postal: House of Finance, Grüneburgplatz 1, HPF H5, D-60323 Frankfurt am Main
Phone: +49 (0)69 798-30050
Fax: +49 (0)69 798-30077
Email:
Web page: http://www.ifk-cfs.de/
More information through EDIRC

Related research

Keywords: Price Impact of Trades; Trading Intensity; Dynamic Duration Models; Spread Decomposition Models; Adverse Selection Risk;

Other versions of this item:

Find related papers by JEL classification:

References

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.:
as in new window
  1. Foucault, Thierry & Kadan, Ohad & Kandel, Eugene, 2001. "Limit Order Book as a Market for Liquidity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2889, C.E.P.R. Discussion Papers.
  2. 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, American Finance Association, vol. 50(5), pages 1655-89, December.
  3. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, Elsevier, vol. 3(3), pages 205-258, August.
  4. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2003. "Modeling and Forecasting Realized Volatility," Econometrica, Econometric Society, Econometric Society, vol. 71(2), pages 579-625, March.
  5. Harris, Lawrence & Hasbrouck, Joel, 1996. "Market vs. Limit Orders: The SuperDOT Evidence on Order Submission Strategy," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 31(02), pages 213-231, June.
  6. Dufour, Alfonso & Engle, Robert F, 1999. "Time and the Price Impact of a Trade," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt62c0h04j, Department of Economics, UC San Diego.
  7. Hee-Joon Ahn, 2001. "Limit Orders, Depth, and Volatility: Evidence from the Stock Exchange of Hong Kong," Journal of Finance, American Finance Association, American Finance Association, vol. 56(2), pages 767-788, 04.
  8. Biais, Bruno & Foucault, Thierry & Salanie, Francois, 1998. "Floors, dealer markets and limit order markets," Journal of Financial Markets, Elsevier, Elsevier, vol. 1(3-4), pages 253-284, September.
  9. Glosten, Lawrence R, 1994. " Is the Electronic Open Limit Order Book Inevitable?," Journal of Finance, American Finance Association, American Finance Association, vol. 49(4), pages 1127-61, September.
  10. Dimitri Vayanos, 2001. "Strategic trading in a dynamic noisy market," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 447, London School of Economics and Political Science, LSE Library.
  11. Parlour, Christine A, 1998. "Price Dynamics in Limit Order Markets," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 11(4), pages 789-816.
  12. Seppi, Duane J, 1997. "Liquidity Provision with Limit Orders and a Strategic Specialist," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 10(1), pages 103-50.
  13. Bruno Biais & David Martimort & Jean-Charles Rochet, 2000. "Competing Mechanisms in a Common Value Environment," Econometrica, Econometric Society, Econometric Society, vol. 68(4), pages 799-838, July.
  14. Ranaldo, Angelo, 2004. "Order aggressiveness in limit order book markets," Journal of Financial Markets, Elsevier, Elsevier, vol. 7(1), pages 53-74, January.
  15. Ronald L. Goettler & Christine A. Parlour & Uday Rajan, 2005. "Equilibrium in a Dynamic Limit Order Market," Journal of Finance, American Finance Association, American Finance Association, vol. 60(5), pages 2149-2192, October.
  16. Foucault, Thierry, 1999. "Order flow composition and trading costs in a dynamic limit order market1," Journal of Financial Markets, Elsevier, Elsevier, vol. 2(2), pages 99-134, May.
  17. Christine A. Parlour & Duane J. Seppi, 2003. "Liquidity-Based Competition for Order Flow," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 16(2), pages 301-343.
  18. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, American Finance Association, vol. 46(1), pages 179-207, March.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:cfswop:201109. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.