An Analysis of Depth Behavior in an Electronic, Order-Driven Environment

Journal of Banking and Finance

Posted: 21 Jun 1999

See all articles by Paul Brockman

Paul Brockman

Lehigh University - College of Business

Dennis Y. Chung

Simon Fraser University

Abstract

The use of electronic limit order books has been increasing rapidly in recent years. Many of the newly emerging as well as well-established exchanges have adopted electronic, order-driven systems or are in the process of initiating or broadening their order-driven trading. This study investigates inter-temporal and cross-sectional depth patterns on one of the world?s largest electronic, order-driven markets, the Stock Exchange of Hong Kong (SEHK). Results show an inverted U-shaped pattern that mirrors the commonly-reported U-shaped spread pattern. Further cross-sectional analysis demonstrates that depth is negatively related to information asymmetry. An important implication is that the adverse selection impact on corporate liquidity and cost of capital is stronger than previously believed since information costs are realized through the combined, magnifying effect of both spreads and depths.

Note: This is a description of the paper and is not the actual abstract.

JEL Classification: G15

Suggested Citation

Brockman, Paul and Chung, Dennis Y., An Analysis of Depth Behavior in an Electronic, Order-Driven Environment. Journal of Banking and Finance. Available at SSRN: https://ssrn.com/abstract=163488

Paul Brockman (Contact Author)

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Dennis Y. Chung

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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