Time and Trading Behaviour with an Electronic Order Book: Evidence from the Spanish Futures Market

Abstract

This paper attempts to clarify the influence of time on trader behaviour in an electronic order book context. Our research was conducted on the Spanish Financial Futures market over one business week in 1996. We present a simple ACD (Autoregressive Conditional Duration) model to determine the impact of transaction time on prices. We propose a microstructure model based on VAR to identify trader strategies using duration analysis to match orders. The main assumption is that a trade made after a long period of inactivity doesn't have the same informational content on price as a transaction made after a short active period. Our empirical tests are specified only on large trades, because trade size is usually correlated with the duration. Although we find strong evidence of time analysis for our sample, the impact of large trades on prices is negligible.

Keywords: Time, duration, imitative behaviour, order book, futures markets

JEL Classification: C41, D49, G13, G14