Does the Open Limit Order Book Reveal Information About Short-run Stock Price Movements?

Jörgen Hellström () and Ola Simonsen ()
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Jörgen Hellström: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Ola Simonsen: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 687, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: This paper empirically tests whether an open limit order book contains information about future short-run stock price movements. To account for the discrete nature of price changes, the integer-valued autoregressive model of order one is utilized. A model transformation has an advantage over conventional count data approaches since it handles negative integer-valued price changes. The empirical results reveal that measures capturing offered quantities of a share at the best bid- and ask-price reveal more information about future short-run price movements than measures capturing the quantities offered at prices below and above. Imbalance and changes in offered quantities at prices below and above the best bid- and ask-price do, however, have a small and significant effect on future price changes. The results also indicate that the value of order book information is short-term.

Keywords: Negative integer-valued data; time series; INAR; finance; stock price; open limit order book (search for similar items in EconPapers)
JEL-codes: C25 G12 G14 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2006-08-24
New Economics Papers: this item is included in nep-cfn, nep-fin, nep-fmk and nep-mst
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