Commonalities in the order book

Autor: Héléna Beltran-Lopez, Pierre Giot, Joachim Grammig
Rok vydání: 2009
Předmět:
Zdroj: Financial Markets and Portfolio Management. 23:209-242
ISSN: 2373-8529
1934-4554
DOI: 10.1007/s11408-009-0109-y
Popis: More and more trading venues throughout the world operate as open order book markets. In those exchanges, liquidity is supplied voluntarily by market participants who provide an inflow of limit buy and sell orders. Non-executed orders constitute the limit order book which consists of distinct, sorted limit price-depth pairs. This paper uses data from one of the most important European stock markets and shows that, in line with predictions from theoretical market microstructure, a small number of latent factors captures most of the variation in stock specific order books. We show that these order book commonalities are much stronger than liquidity commonality across stocks. The result that bid and ask side as well as the visible and hidden parts of the order book exhibit quite specific dynamics is interpreted as evidence that open order book markets attract a heterogeneous trader population in terms of asset valuations and impatience. The paper also shows that the information share attributable to the extracted factors with respect to the long run evolution of the asset price is non-negligible. In other words, shifts and rotations of the order book carry informational content. The information shares are considerably different across stocks. While for the group of most actively traded stocks (which are also the biggest in terms of market capitalization) we estimate an average information share attributable to the extracted factors of about 5 percent, the number doubles for the group of least frequently traded stocks. On the other hand, the hidden part of the book does not carry economically significant informational content.
Databáze: OpenAIRE
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