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The Information Content Of An Open Limit-Order Book

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Modified on 2011/08/13 22:56 by Administrator Categorized as Articles

Charles Cao, Oliver Hansch, Xiaoxin Wang

Using data from the Australian Stock Exchange, the authors assess the information content of an open limit-order book with a particular focus on the incremental information contained in the limit orders behind the best bid and offer. The authors find that the order book is moderately informative—its contribution to price discovery is approximately 22%. The remaining 78% is from the best bid and offer prices on the book and the last transaction price. Furthermore, the authors find that order imbalances between the demand and supply schedules along the book are significantly related to future short-term returns, even after controlling for the autocorrelations in return, the inside spread, and the trade imbalance.

Published by The Pennsylvania State University on 1/1/2009

The Information Content Of An Open Limit-Order Book