Screen Information, Trader Activity, and Bid-Ask Spreads in a Limit Order Market

48 Pages Posted: 11 Oct 1999

See all articles by Mark Coppejans

Mark Coppejans

BlackRock, Inc; Barclays Global Investors

Ian Domowitz

ITG, Inc.; National Bureau of Economic Research (NBER)

Date Written: August 1999

Abstract

A key focus of empirical work on limit order markets is the relative importance of individual pieces of information in characterizing order submission and trade execution. We enlarge this focus to include an examination of pricing behavior, using data on index futures trading in a pure electronic limit order book market. A theoretical link between order, trade, and cancellation arrival rates, and the distribution of bid-ask spreads is empirically implemented. Evaluation of models across different information sets is based on relative ability to predict market activity and pricing out-of-sample. A main finding of the paper is the importance and superiority of information embodied in continuous individual traders' actions in characterizing order submission behavior and the structure of pricing. The book information on chararcteristics of resting orders alone cannot explain subsequent order submission, trade, or pricing behavior, and has little impact on the shape of the spread distribution.

JEL Classification: G10, G14, G15

Suggested Citation

Coppejans, Mark T. and Domowitz, Ian H., Screen Information, Trader Activity, and Bid-Ask Spreads in a Limit Order Market (August 1999). Available at SSRN: https://ssrn.com/abstract=174692 or http://dx.doi.org/10.2139/ssrn.174692

Mark T. Coppejans

BlackRock, Inc ( email )

San Francisco, CA
United States

Barclays Global Investors ( email )

45 Fremont Street
San Francisco, CA 94105
United States

Ian H. Domowitz (Contact Author)

ITG, Inc. ( email )

380 Madison Avenue, 4th Floor
Electronic Market Initiatives
New York, NY 10017
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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