Order Aggressiveness

Abstract:     
This study analyzes the information content of the limit order book in a pure order-driven market. The objective is twofold. First, we analyze how the state of the limit order book affects the trader strategies. Second, we develop a new econometric technique to study order aggressiveness and provide empirical evidence on the recent theoretical models on limit order book markets. Our results show that a patient trader becomes more aggressive when the own (opposite) side book is deeper (thinner), the spread is wider and the temporary volatility increases. Asymmetric results hold for eager agents. Also, the buy and the sell sides of the book affect the order flow differently.

Keywords: limit order book; limit orders; microstructure; order aggressiveness

JEL Classifications: G15, G25, G29

Working Paper Series