Quantifying the efficiency of the Xetra LOB market: Detailed recipe

Miriam Sperl

No 2008/21, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: Motivated by the prominent role of electronic limit order book (LOB) markets in today’s stock market environment, this paper provides the basis for understanding, reconstructing and adopting Hollifield, Miller, Sandas, and Slive’s (2006) (henceforth HMSS) methodology for estimating the gains from trade to the Xetra LOB market at the Frankfurt Stock Exchange (FSE) in order to evaluate its performance in this respect. Therefore this paper looks deeply into HMSS’s base model and provides a structured recipe for the planned implementation with Xetra LOB data. The contribution of this paper lies in the modification of HMSS’s methodology with respect to the particularities of the Xetra trading system that are not yet considered in HMSS’s base model. The necessary modifications, as expressed in terms of empirical caveats, are substantial to derive unbiased market efficiency measures for Xetra in the end.

Keywords: Limit Order Book Market; Gains from Trade; Xetra (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:200821

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