Modelling the Buy and Sell Intensity in a Limit Order Book Market

Posted: 1 Nov 2008

See all articles by Tony Hall

Tony Hall

Nikolaus Hautsch

University of Vienna - Department of Statistics and Operations Research; Center for Financial Studies (CFS); Vienna Graduate School of Finance (VGSF)

Date Written: October 30, 2008

Abstract

In this paper, we model the buy and sell arrival process in the limit order book market at the Australian Stock Exchange. Using a bivariate autoregressive intensity model we analyze the contemporaneous buy and sell intensity as a function of the state of the market. We find evidence that trading decisions are both information as well as liquidity driven. Confirming predictions from market microstructure theory traders submit market orders by inferring from the recent order flow and the book with respect to upper and lower tail expectations as well as trading directions. However, traders also tend to take liquidity when the liquidity supply is high. Moreover, we find evidence that traders pay more attention to recent order arrivals and the current state of the order book than to the past order flow.

Keywords: buy and sell arrival process, order book information, market depth, bivariate autoregressive intensity model, net buy pressure

JEL Classification: G14, C32, C41

Suggested Citation

Hall, Anthony D and Hautsch, Nikolaus, Modelling the Buy and Sell Intensity in a Limit Order Book Market (October 30, 2008). Journal of Financial Markets, Vol. 10, No. 3, 2007. Available at SSRN: https://ssrn.com/abstract=1292522

Nikolaus Hautsch (Contact Author)

University of Vienna - Department of Statistics and Operations Research ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

Center for Financial Studies (CFS) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

No contact information is available for Anthony D Hall

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