Understanding limit order book depth: conditioning on trade informativeness

Helena Beltran and Albert Menkveld

No 142, Econometric Society 2004 Latin American Meetings from Econometric Society

Abstract: We study how a limit order book reacts to informed trades and adverse selection. We estimate Sandas'(2001) version of the classical Glosten (1994) order book model and accept it, but only for the first two prices displayed on each side of the book. We then relax one of the assumption and allow the level of private information in market orders to be stochastic. By conditioning on the information level, we find support for deeper order books, larger market orders and shorter inter-trade durations at times of relatively uninformative market orders, which is consistent with liquidity traders concentrating their orders at uninformative times.

Keywords: Order book; liquidity; trade informativeness (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2004-08-11
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Citations: View citations in EconPapers (1)

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