Volatility, Depth, and Order Composition: Evidence from a Pure Limit Order Futures Market

Ho-Chyuan Chen and Juping Wu

Emerging Markets Finance and Trade, 2009, vol. 45, issue 5, 72-85

Abstract: This paper investigates market behaviors (such as volatility, depth, and volume) and order-flow decomposition in a pure limit order futures market, the Taiwan Futures Exchange. The results are different from those in equity markets due to relatively high adverse selection costs in futures markets. We show that a volatility (depth) increase is followed by a depth (volatility) decrease; a market order increase (decrease) subsequently induces higher (lower) volatility; and a limit order increase (decrease) results in more (less) market orders and limit orders. When the upside (downside) volatility rises, buyers decrease (increase) subsequent limit bid orders, and sellers increase (decrease) limit ask orders.

Keywords: adverse selection; ask order; bid order; depth; futures market; informed traders; limit order; market order; market volatility; order composition (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (4)

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