The role of time in price discovery
In this paper we investigate the price effects of trading intensity. Extending on the Madhavan et al. (1997) model, we split the intensity effect into liquidity and information effects. We provide a measure of market quality that is the ratio of the covariance bias to the variance bias. Analyzing ab...
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2017
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| Online Access: | http://hdl.handle.net/10725/5660 http://libraries.lau.edu.lb/research/laur/terms-of-use/articles.php https://www.researchgate.net/publication/265309322_The_Role_of_Time_in_Price_Discovery_Ultra-high_frequency_trading_in_a_Limit_Order_Book_Market |
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| _version_ | 1864513477423398912 |
|---|---|
| author | Ben Sita, Bernard |
| author2 | Westerholm, P. Westerholm |
| author2_role | author |
| author_facet | Ben Sita, Bernard Westerholm, P. Westerholm |
| author_role | author |
| dc.creator.none.fl_str_mv | Ben Sita, Bernard Westerholm, P. Westerholm |
| dc.date.none.fl_str_mv | 2017-05-23T09:40:57Z 2017-05-23T09:40:57Z 2017-05-23 |
| dc.identifier.none.fl_str_mv | http://hdl.handle.net/10725/5660 Sita, B., & Westerholm, J. (2006, June). The role of time in price discovery: Ultra-high frequency trading in a limit order book market. In Financial Management Association (FMA) European Conference. Stockholm, Sweden (pp. 8-9). http://libraries.lau.edu.lb/research/laur/terms-of-use/articles.php https://www.researchgate.net/publication/265309322_The_Role_of_Time_in_Price_Discovery_Ultra-high_frequency_trading_in_a_Limit_Order_Book_Market |
| dc.language.none.fl_str_mv | en |
| dc.rights.*.fl_str_mv | info:eu-repo/semantics/openAccess |
| dc.title.none.fl_str_mv | The role of time in price discovery ultra-high frequency trading in a Limit Order Book Market |
| dc.type.none.fl_str_mv | Conference Paper / Proceeding info:eu-repo/semantics/publishedVersion info:eu-repo/semantics/conferenceObject |
| description | In this paper we investigate the price effects of trading intensity. Extending on the Madhavan et al. (1997) model, we split the intensity effect into liquidity and information effects. We provide a measure of market quality that is the ratio of the covariance bias to the variance bias. Analyzing about 6 years of tick by tick data, we find that the bid-ask spread in a pure limit order book market contains a risk component associated with managing the time to trade, and this component accounts for roughly 19.6% of the implied bid-ask spread. Extending our model to investigate intraday patterns, we find that the adverse selection cost exhibits a U-shaped pattern reflecting uncertainty at market openings in the Helsinki Stock Exchange (HEX) and in the New York Stock Exchange (NYSE). The results emphasize the importance of managing time in limit order book markets. |
| eu_rights_str_mv | openAccess |
| format | conferenceObject |
| id | LAURepo_55a40eab0473401ebc9181bab9af11c8 |
| identifier_str_mv | Sita, B., & Westerholm, J. (2006, June). The role of time in price discovery: Ultra-high frequency trading in a limit order book market. In Financial Management Association (FMA) European Conference. Stockholm, Sweden (pp. 8-9). |
| language_invalid_str_mv | en |
| network_acronym_str | LAURepo |
| network_name_str | Lebanese American University repository |
| oai_identifier_str | oai:laur.lau.edu.lb:10725/5660 |
| publishDate | 2017 |
| repository.mail.fl_str_mv | |
| repository.name.fl_str_mv | |
| repository_id_str | |
| spelling | The role of time in price discoveryultra-high frequency trading in a Limit Order Book MarketBen Sita, BernardWesterholm, P. WesterholmIn this paper we investigate the price effects of trading intensity. Extending on the Madhavan et al. (1997) model, we split the intensity effect into liquidity and information effects. We provide a measure of market quality that is the ratio of the covariance bias to the variance bias. Analyzing about 6 years of tick by tick data, we find that the bid-ask spread in a pure limit order book market contains a risk component associated with managing the time to trade, and this component accounts for roughly 19.6% of the implied bid-ask spread. Extending our model to investigate intraday patterns, we find that the adverse selection cost exhibits a U-shaped pattern reflecting uncertainty at market openings in the Helsinki Stock Exchange (HEX) and in the New York Stock Exchange (NYSE). The results emphasize the importance of managing time in limit order book markets.N/A2017-05-23T09:40:57Z2017-05-23T09:40:57Z2017-05-23Conference Paper / Proceedinginfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/conferenceObjecthttp://hdl.handle.net/10725/5660Sita, B., & Westerholm, J. (2006, June). The role of time in price discovery: Ultra-high frequency trading in a limit order book market. In Financial Management Association (FMA) European Conference. Stockholm, Sweden (pp. 8-9).http://libraries.lau.edu.lb/research/laur/terms-of-use/articles.phphttps://www.researchgate.net/publication/265309322_The_Role_of_Time_in_Price_Discovery_Ultra-high_frequency_trading_in_a_Limit_Order_Book_Marketeninfo:eu-repo/semantics/openAccessoai:laur.lau.edu.lb:10725/56602021-03-19T09:10:11Z |
| spellingShingle | The role of time in price discovery Ben Sita, Bernard |
| status_str | publishedVersion |
| title | The role of time in price discovery |
| title_full | The role of time in price discovery |
| title_fullStr | The role of time in price discovery |
| title_full_unstemmed | The role of time in price discovery |
| title_short | The role of time in price discovery |
| title_sort | The role of time in price discovery |
| url | http://hdl.handle.net/10725/5660 http://libraries.lau.edu.lb/research/laur/terms-of-use/articles.php https://www.researchgate.net/publication/265309322_The_Role_of_Time_in_Price_Discovery_Ultra-high_frequency_trading_in_a_Limit_Order_Book_Market |