The Information Content of Quotes in High Frequency Order Driven Markets

Abstract

This paper investigates the information content present in the quotes in an order driven market without the presence of designated market makers. A representation is proposed that recognises the ability of participants in such markets to observe market events and calibrate their quoting activity. The public signal of the asset price formed after a general consensus among participants is seen to be a part of the price system. Information aggregates into the public signal with a low frequency to negate microstructure and trading effects.

Keywords: Information Content of Quotes, Information Aggregation, Continuous Double Auctions, High Frequency, Order Driven Markets

JEL Classification: G14, G12, G15