An Empirical Analysis of the Shanghai and Shenzhen Limit Order Books

Huimin Chung, Cheng Gao, Jie Lu and Bruce Mizrach
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Huimin Chung: National Chiao Tung University
Cheng Gao: Rutgers University

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: This paper investigates the market microstructure of the Shanghai and Shenzhen Stock Exchanges. The two major Chinese stock markets are pure order-driven trading mechanisms without market makers, and we analyze empirically both limit order books. We begin our empirical modeling using the vector autoregressive model of Hasbrouck and extend the model to incorporate other information in the limit order book. We also study the market impact on A shares, B shares and H shares, and analyze how the market impact of stocks varies cross sectionally with market capitalization, tick frequencies, and turnover. Furthermore, we find that market impact is increasing in trade size. Order imbalances predict the next day's returns, with small order imbalances having a negative effect.

Keywords: limit order book; Chinese stock market; microstructure; VAR model (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2013-07-16
New Economics Papers: this item is included in nep-mst and nep-tra
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Citations: View citations in EconPapers (2)

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http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2055179

Related works:
Journal Article: An empirical analysis of the Shanghai and Shenzhen limit order books (2013)
Working Paper: An Empirical Analysis of the Shanghai and Shenzen Limit Order Books (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:201319

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