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An Empirical Analysis of the Shanghai and Shenzhen Limit Order Books

Author

Listed:
  • Huimin Chung

    (National Chiao Tung University)

  • Cheng Gao

    (Rutgers University)

  • Jie Lu

    (Rutgers University)

  • Bruce Mizrach

    (Rutgers University)

Abstract

This paper investigates the market microstructure of the Shanghai and Shenzhen Stock Exchanges. The two major Chinese stock markets are pure order-driven trading mechanisms without market makers, and we analyze empirically both limit order books. We begin our empirical modeling using the vector autoregressive model of Hasbrouck and extend the model to incorporate other information in the limit order book. We also study the market impact on A shares, B shares and H shares, and analyze how the market impact of stocks varies cross sectionally with market capitalization, tick frequencies, and turnover. Furthermore, we find that market impact is increasing in trade size. Order imbalances predict the next day's returns, with small order imbalances having a negative effect.

Suggested Citation

  • Huimin Chung & Cheng Gao & Jie Lu & Bruce Mizrach, 2013. "An Empirical Analysis of the Shanghai and Shenzhen Limit Order Books," Departmental Working Papers 201319, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:201319
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    Cited by:

    1. Chiarella, Carl & He, Xue-Zhong & Wei, Lijian, 2015. "Learning, information processing and order submission in limit order markets," Journal of Economic Dynamics and Control, Elsevier, vol. 61(C), pages 245-268.
    2. Westerlund, Joakim & Narayan, Paresh Kumar & Zheng, Xinwei, 2015. "Testing for stock return predictability in a large Chinese panel," Emerging Markets Review, Elsevier, vol. 24(C), pages 81-100.

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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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