Analysis of Limit Order Book and Order Flow

44 Pages Posted: 28 May 2004  

Charlie Charoenwong

Nanyang Technological University (NTU)

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

David K. Ding

Singapore Management University - Lee Kong Chian School of Business; Massey University - School of Economics and Finance

Date Written: July 2003

Abstract

This paper extensively employs the order and trade data to analyze the shape of limit order book and the behavior of strategic order submission. The order book of stocks exhibits weakly convex pattern on the bid side due to wide price spreads away from the market. This characteristic of liquidity is particularly strong for the small stocks with large minimum tick size. In addition, the same order type occurs more frequently after the event had occurred than it would unconditionally. This diagonal effect is not fully explained by the order splitting. Moreover, the determinants driving order aggressiveness include bid-ask spread, market depths, other price spreads and depths away from the market, and market sentiment. Responding to the limit order book movement, an order aggressiveness revision behavior of market order traders is opposite to limit order traders, and contrarian traders react stronger than momentum traders.

Keywords: limit order book, order flow, Thailand

JEL Classification: G10, G15

Suggested Citation

Charoenwong, Charlie and Visaltanachoti, Nuttawat and Ding, David K., Analysis of Limit Order Book and Order Flow (July 2003). EFMA 2004 Basel Meetings Paper. Available at SSRN: https://ssrn.com/abstract=488422 or http://dx.doi.org/10.2139/ssrn.488422

Charlie Charoenwong

Nanyang Technological University (NTU) ( email )

Nanyang Business School, BF Division
S3-01c-104
Singapore, 639798
Singapore
+65 6790 4799 (Phone)
+65 6791 3697 (Fax)

Nuttawat Visaltanachoti (Contact Author)

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
Private Bag 102904, NSMC
Auckland
New Zealand
64 9 414 0800 (43169) (Phone)
64 9 441 8177 (Fax)

David K. Ding

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore, 178899
Singapore
+65 6828-0245 (Phone)

Massey University - School of Economics and Finance ( email )

Auckland
New Zealand

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