Price Movement Effects on the State of the Electronic Limit‐Order Book

Yue‐cheong Chan

The Financial Review, 2005, vol. 40, issue 2, 195-221

Abstract: This paper investigates public‐trader order‐placement strategies by examining the relations between the state of the limit‐order book and previous price movements. There is support for an information effect, as traders become more aggressive in buying and more patient in selling after previous positive stock returns. The widening of the bid‐ask spread also causes traders to place less aggressive orders. However, there is no evidence of the options effect on limit‐order trading. This study also reveals that orders at the best quotes react faster and complete the adjustment earlier than orders that are far away from the best quotes.

Date: 2005
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