 Predicting future price volatility: Empirical evidence from an emerging limit order marketPawan Jain and Christine Jiang Pacific-Basin Finance Journal, 2014, vol. 27, issue C, 72-93 Abstract: We investigate the information content of the limit order book (LOB) on the Shanghai Stock Exchange (SHSE), a purely order-driven market. We find strong evidence that the LOB slope consistently and significantly predicts the future price volatility. However, this predictive power of the LOB declines during extreme market-wide movements. We also find that buy orders are more informative for future price volatility than sell orders, but sell (buy) orders become more informative during extreme market-wide down (up) movement days. Finally, we document that the predictive power of the LOB is short lived and markets are efficient over the longer time horizon. These results are helpful in understanding market efficiency and the traders' order submission strategies on the fast growing market of SHSE. Keywords: Limit order book; Volatility; Slope; Cost-to-trade; High frequency; Intra-day; Shanghai Stock Exchange; Extreme market condition (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:27:y:2014:i:c:p:72-93 DOI: 10.1016/j.pacfin.2014.01.006 Access Statistics for this article Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee More articles in Pacific-Basin Finance Journal from Elsevier |
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