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Volatility and the role of order book structure

  • Ralf Becker

    ()

    (University Manchester)

  • Adam Clements

    ()

    (QUT)

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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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
Contact details of provider: Phone: 07 3138 5066
Fax: 07 3138 1500
Web page: http://www.ncer.edu.au

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  1. 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.
  2. 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.
  3. 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.
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