Pre-trade Transparency and the Information Content of the Limit Order Book

Market Microstructure and Nonlinear Dynamics - Keeping Financial Crisis in Context, edited by Gilles Dufrénot, Fredj Jawadi and Wael Louhichi (Eds), Springer-Verlag, 2014

2012 Financial Markets & Corporate Governance Conference

24th Australasian Finance and Banking Conference 2011 Paper

31 Pages Posted: 26 Aug 2011 Last revised: 8 Feb 2015

See all articles by Huu Nhan Duong

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Petko S. Kalev

La Trobe Business School

Yang Sun

University of South Australia

Date Written: December 9, 2013

Abstract

This chapter investigates the influence of improved pre-trade transparency on the information content of the limit order book. Data from two natural experiments are examined: when the Sydney Futures Exchange increased the limit order book disclosure from the best bid and ask level to the best three price levels in 2001 and from the best three to the best five price levels in 2003. Evidence shows that the limit order book contains information on future return and volatility. The limit order book also becomes more informative following the two improvements in pre-trade transparency, with stronger result for the first event. The findings of this study highlight a diminishing benefit of additional limit order book disclosure.

Keywords: Limit Order Book, Pre-trade Transparency, Information Content, Interest Rate Futures

JEL Classification: G10, G20, G24

Suggested Citation

Duong, Huu Nhan and Kalev, Petko S. and Sun, Yang, Pre-trade Transparency and the Information Content of the Limit Order Book (December 9, 2013). Market Microstructure and Nonlinear Dynamics - Keeping Financial Crisis in Context, edited by Gilles Dufrénot, Fredj Jawadi and Wael Louhichi (Eds), Springer-Verlag, 2014; 2012 Financial Markets & Corporate Governance Conference; 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1917205 or http://dx.doi.org/10.2139/ssrn.1917205

Huu Nhan Duong

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Petko S. Kalev (Contact Author)

La Trobe Business School ( email )

Department of Economics and Finance
Donald Whitehead Building: Level 3, DWB313
Bundoora, Victoria 3086
Australia
+613 9479 6285 (Phone)
+613 9479 1654 (Fax)

HOME PAGE: http://www.latrobe.edu.au/business/about/staff/profile?uname=PKalev

Yang Sun

University of South Australia ( email )

37-44 North Terrace, City West Campus
Adelaide, South Australia 5001
Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
34
Abstract Views
295
PlumX Metrics