The Informational Content of Limit Order Distributions During Market Auctions

30 Pages Posted: 13 Apr 2016

See all articles by Federico Platania

Federico Platania

University of Liege; Ecole Superieure d'Ingenierie Leonard de Vinci (ESILV); Ecole de Management Léonard De Vinci

Pedro Serrano

University Carlos III of Madrid - Department of Business Administration

Mikel Tapia

Universidad Carlos III de Madrid - Department of Business Administration

Date Written: April 11, 2016

Abstract

Market auctions serve as a reasonable way to fix highly consensual prices for market participants, acting as information aggregation mechanisms. This article presents a novel framework for extracting information about market participants from the distribution of limit orders posted during pre-opening market auctions. The dynamics of these limit order distributions are described through a continuous-time model that permits inferring whether agents (in aggregate) post their bets according to commonly available information or while discarding the fundamental data. The methodology presented here permits disentangling the information patterns that occur during the price discovery process in call auctions. Empirical evidence on listed companies exhibits a significant reduction of the noise during the auction.

Keywords: Call auction; pre-opening period; noise trader; partial-differential equation.

JEL Classification: G01, G12, G15, G32

Suggested Citation

Platania, Federico and Serrano, Pedro and Tapia, Mikel, The Informational Content of Limit Order Distributions During Market Auctions (April 11, 2016). Available at SSRN: https://ssrn.com/abstract=2763200 or http://dx.doi.org/10.2139/ssrn.2763200

Federico Platania

University of Liege ( email )

B-4000 Liege
Belgium

Ecole Superieure d'Ingenierie Leonard de Vinci (ESILV) ( email )

92916 Paris La Defense Cedex
France

Ecole de Management Léonard De Vinci ( email )

Paris

Pedro Serrano (Contact Author)

University Carlos III of Madrid - Department of Business Administration ( email )

C/ Madrid, 126
Getafe, Madrid 28903
Spain
+34916248926 (Phone)

Mikel Tapia

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

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