Order Choice and Information in Limit Order Markets

Roşu, Ioanid

doi:10.1002/9781118673553.ch2

Cited by 5 publications

(1 citation statement)

References 55 publications

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“…The formulae to compute these measures are provided in Appendix 3. The current state (indicated by shape) of a LOB substantially affects the price formation, liquidity provisioning, ST price volatility and order choice of traders (Ahn et al, 2001;Cao et al, 2008;Obizhaeva and Wang, 2013;Pascual and Veredas, 2009;Pham et al, 2018;Rosu, 2012Rosu, , 2016Valenzuela et al, 2015). For example, the distribution of liquidity across the order book reflects the consensus or the lack of it, about the fundamental price.…”

Section: Shape Of Limit Order Bookmentioning

confidence: 99%

Limit order books: a systematic review of literature

Tripathi

Vipul

Dixit

2020

QRFM

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Purpose This study aims to provide a systematic literature review of the research study in the area of limit order book (LOB) mechanism of trading and its implications for market efficiency. The study attempts to document the recent theoretical developments and empirical findings from the literature exhaustively and identifies the research gaps for future research. Design/methodology/approach The study uses seven reputable databases to select 2,514 research studies spanning over 1981-2018 (finally compressed to a pool of 103 articles, based on relevance and impact). The study uses bibliometric network visualization and text analytics to categorize and examine the literature. The chosen articles are compiled and analyzed to provide a comprehensive account of the current research on LOBs. Findings The recent LOB literature is summarized on various criteria as follows: sub-areas, the types of economies and markets, methodologies and the LOB measures. The review identifies a dearth of studies on the LOBs in emerging markets. It suggests the potential research areas as intraday studies in emerging LOB markets; application of market indicators based on deeper levels of LOB, beyond the best prices; market fragmentation, order routing decision and its impact on order execution quality; optimal display of LOB levels; liquidity dynamics in quote-driven markets vis-à-vis LOB markets; effect of high-frequency trading on market microstructure; application of advanced techniques (e.g. machine learning models, zero-intelligent models); relationship between the trading speed, order aggressiveness, shape and resilience of the order book and informed trading; and information content of the auxiliary order submission strategies, including cancellation, amendments and hidden orders. Originality/value For the past 15 years, to the best of the knowledge, a comprehensive review of the literature on LOBs has not been published. The financial markets have transformed significantly over this period, driven by the adoption of LOBs, low latency trading and technological advancements in information dissemination. This article provides an extensive collection and classification of the literature on LOBs. This would be useful for the practitioners, future researchers and academics in the area of financial markets.

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Section: Shape Of Limit Order Bookmentioning

confidence: 99%

Limit order books: a systematic review of literature

Tripathi

Vipul

Dixit

2020

QRFM

View full text Add to dashboard Cite

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Market structure and price clustering: Maker‐taker versus taker‐maker

Cox,

Griffith,

Van Ness

2024

J of Financial Research

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We examine whether the different fee structures on equity exchanges, maker‐taker or taker‐maker, affects the frequency with which security prices cluster on round increments. We find higher price clustering on traditional maker‐taker venues relative to inverted taker‐maker venues. These results generally hold at the individual exchange level and across transaction‐ and quotation‐level clustering measures. Furthermore, we document that quoted depth, both inside and outside the best prices, is significantly greater on maker‐taker venues than on taker‐maker venues. We show that liquidity supply is the main economic driver behind the difference in price clustering between market structures. Our findings indicate that fees and rebates alter order‐routing strategies, which affect the precision of asset prices.

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Learning and Information Dissemination in Limit Order Markets

Wei

Zhang

et al. 2013

SSRN Journal

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What can traders learn and how does learning affect the market? When information is asymmetric, short-lived, and uninformed traders learn, we present an artificial limit order market model to examine the effect of learning, information value, and order aggressiveness on information dissemination efficiency, bid-ask spread, order submission, and order profit of traders. We find that learning helps the uninformed traders to acquire private information more effectively and hence improves market information dissemination. Also the informed traders in general consume liquidity while the uninformed traders mainly supply liquidity. More interestingly, due to the learning and short-lived information, the bid-ask spread and its volatility are positively related to the probability of informed trading. The results help us to understand the behavior of uninformed traders and provide substantial insight and intuition into the trading process.

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Order Choice and Information in Limit Order Markets

Cited by 5 publications

References 55 publications

Limit order books: a systematic review of literature

Limit order books: a systematic review of literature

Market structure and price clustering: Maker‐taker versus taker‐maker

Learning and Information Dissemination in Limit Order Markets

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