Order Book Price Impact in the Chinese Soybean Futures Market

Abstract

We study the price impact of order flow in the world’s largest soybean meal futures markets. Our intraday results indicate that incoming orders can be used to explain price changes and to significantly predict future price changes. Our results are shown to be robust to various order flow measures, price aggregation approaches and data frequencies. We compare various order flow measures; finding that Order Flow Imbalance (OFI) is a more all-encompassing measure carrying greater information about price change relative to both Trade Imbalance (TI) and volume. Moreover, while both OFI and TI are shown to predict future price changes, this predictability diminishes over longer measure and price change frequency horizons.

Keywords: Order flow imbalance, Limit order book, Price impact, Futures markets

JEL Classification: G12, G13, G15