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Order Aggressiveness in Limit Order Book Markets

Posted: 15 Jan 2004  

Angelo Ranaldo

University of St. Gallen; University of St. Gallen - School of Finance

Abstract

I examine the information content of a limit order book in a purely order-driven market. I analyze how the state of the limit order book affects a trader's strategy. I develop an econometric technique to study order aggressiveness and provide empirical evidence on the recent theoretical models on limit order book markets. My results show that patient traders become more aggressive when the own (opposite) side book is thicker (thinner), the spread wider, and the temporary volatility increases. Also, I find that the buy and the sell sides of the book affect the order submission differently.

Keywords: Limit order book, limit orders, microstructure, order aggressiveness, probit model

JEL Classification: C35, G15, G25, G29

Suggested Citation

Ranaldo, Angelo, Order Aggressiveness in Limit Order Book Markets. Journal of Financial Markets, Vol. 7, No. 1, 2004. Available at SSRN: https://ssrn.com/abstract=331640

Angelo Ranaldo (Contact Author)

University of St. Gallen ( email )

Swiss Institute of Banking and Finance s/bf-HSG
Unterer Graben 21
St. Gallen, 9000
Switzerland
+41712247010 (Phone)

HOME PAGE: http://www.sbf.unisg.ch/Lehrstuehle/Lehrstuhl_Ranaldo/Homepage_Ranaldo.aspx

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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