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Price Clustering: Evidence Using Comprehensive Limit-Order Data

  • Chaoshin Chiao
  • Zi-May Wang
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    Employing comprehensive limit-order data which identify investor types, this paper examines the clustering pattern of limit-order prices. First, limit orders, particularly those submitted by individual investors (IIs), tend to cluster at integer and even prices. Second, nonmarketable limit-order prices cluster more than marketable limit-order prices, indicating that aggressive limit orders generally embed more information. Third, investors choosing even-priced limit orders are not penalized by lower execution ratios. Fourth, investors (particularly IIs) strategically exhibit front-running behavior. Fifth, price clustering indeed creates price barriers. Finally, the degree of price clustering using trade data is significantly underestimated, compared to that using limit-order data. Copyright (c) 2009, The Eastern Finance Association.

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    Article provided by Eastern Finance Association in its journal Financial Review.

    Volume (Year): 44 (2009)
    Issue (Month): 1 (02)
    Pages: 1-29

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    Handle: RePEc:bla:finrev:v:44:y:2009:i:1:p:1-29
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