Arbeitspapier
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 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.
- Language
-
Englisch
- Bibliographic citation
-
Series: SFB 649 Discussion Paper ; No. 2009,051
- Classification
-
Wirtschaft
Information and Market Efficiency; Event Studies; Insider Trading
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Financial Forecasting and Simulation
- Subject
-
price impact
limit order
impulse response function
cointegration
Wertpapierhandel
Auftrag
Börsenkurs
Bid-Ask Spread
Reaktionsfunktion
Kointegration
VAR-Modell
Schätzung
Niederlande
- Event
-
Geistige Schöpfung
- (who)
-
Hautsch, Nikolaus
Huang, Ruihong
- Event
-
Veröffentlichung
- (who)
-
Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
- (where)
-
Berlin
- (when)
-
2009
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Hautsch, Nikolaus
- Huang, Ruihong
- Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
Time of origin
- 2009
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