Informativeness and Influence of Limit Order Books on Order Submissions in Electronic Continuous Auction Markets

Matthew C. Chang and Rebecca Chung-Fern Wu

Emerging Markets Finance and Trade, 2013, vol. 49, issue S3, 70-97

Abstract: In this study, the authors investigate the relationship between price movement and the depth of limit order books, as well as the relationship between order submission/ cancellation and depth for institutional and individual investors, respectively. They find that the relationship between the best bid/ask depth on limit order books and price movement is positive. However, the relationship is less significant for the sum of the second to fifth depths resulting from the corresponding bid/ask prices, especially in the groups having the lowest trading volume and the lowest market capitalization. They conjecture that the difference in informational content between the best depth and minor depth is due to the continuous auction-trading mechanism on the Taiwan Stock Exchange (TWSE). In addition, the authors find that individual and institutional investors submit and cancel orders differently depending on the depth of the limit order books. In particular, individual investors are more stable in providing liquidity on the buy side than on the sell side. The authors contribute to better understanding of the informative role limit order books play and the influence of limit order books on order submissions and cancellations.

Keywords: depth of limit order books; individual investors; institutional investors; liquidity; TWSE (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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