The market impact of a limit order

Despite their importance in modern electronic trading, virtually no systematic empirical evidence on the market impact of incoming orders is existing. We quantify the short-run and long-run price effect of posting a limi
Despite their importance in modern electronic trading, virtually no systematic empirical evidence on the market impact of incoming orders is existing. We quantify the short-run and long-run price effect of posting a limit order by proposing a high-frequency cointegrated VAR model for ask and bid quotes and several levels of order book depth. Price impacts are estimated by means of appropriate impulse response functions. Analyzing order book data of 30 stocks traded at Euronext Amsterdam, we show that limit orders have significant market impacts and cause a dynamic (and typically asymmetric) rebalancing of the book. The strength and direction of quote and spread responses depend on the incoming orders’ aggressiveness, their size and the state of the book. We show that the effects are qualitatively quite stable across the market. Cross-sectional variations in the magnitudes of price impacts are well explained by the underlying trading frequency and relative tick size. Keywords: Price Impact, Limit Order, Impulse Response Function, Cointegration
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Metadaten
Author:Nikolaus Hautsch, Ruihong Huang
URN:urn:nbn:de:hebis:30-72720
Parent Title (German):CFS working paper series ; 2009, 23
Series (Serial Number):CFS working paper series (2009, 23)
Document Type:Working Paper
Language:English
Date of Publication (online):2009/12/02
Year of first Publication:2009
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2009/12/02
Tag:Cointegration; Impulse Response Function ; Limit Order ; Price Impact
HeBIS PPN:22022501X
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:C32 Time-Series Models; Dynamic Quantile Regressions (Updated!)
G14 Information and Market Efficiency; Event Studies
G17 Financial Forecasting (Updated!)
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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