The information content of an open limit-order book

Charles Cao, Oliver Hansch, Xiaoxin Wang

Research output: Contribution to journalArticlepeer-review

97 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)16-41
Number of pages26
JournalJournal of Futures Markets
Volume29
Issue number1
DOIs
StatePublished - Jan 1 2009

All Science Journal Classification (ASJC) codes

  • Accounting
  • Business, Management and Accounting(all)
  • Finance
  • Economics and Econometrics

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