Information, Liquidity, and Dynamic Limit Order Markets
57 Pages Posted: 7 Sep 2017 Last revised: 4 Mar 2020
Date Written: March 1, 2020
This paper describes price discovery and liquidity provision in a dynamic limit order market with asymmetric information and non-Markovian learning. Investors condition on information in both the current limit order book and also, unlike in previous re-search, on the prior order history when deciding whether to provide or take liquidity. Our analysis shows that the information content of the prior order history can be substantial. Surprisingly, the information content of equilibrium orders can differ from order direction and aggressiveness.
Keywords: Limit order markets, asymmetric information, liquidity, market microstructure
JEL Classification: G10, G20, G24, D40
Suggested Citation: Suggested Citation