A Continuous-Time Measurement of the Buy-Sell Pressure in a Limit Order Book Market
University of Copenhagen Finance Working Paper No. 2004/03
38 Pages Posted: 14 Jun 2005
Date Written: September 30, 2004
In this paper, we investigate the buy and sell arrival process in a limit order book market. Using an intensity framework allows to estimate the simultaneous buy and sell intensity and to derive a continuous-time measure for the buy-sell pressure in the market. Based on limit order book data from the Australian Stock Exchange (ASX), we show that the buy-sell pressure is particularly influenced by recent market and limit orders and the current depth in the ask and bid queue. We find evidence for the hypothesis that traders use order book information in order to infer from the price setting behavior of market participants. Furthermore, our results indicate that the buy-sell pressure is clearly predictable and is a significant determinant of trade-to-trade returns and volatility.
Keywords: Buy and sell arrival process, order book information, market depth, bivariate
JEL Classification: G14, C32, C41
Suggested Citation: Suggested Citation