Market Orders and Market Efficiency

Brown, David P.; Zhang, Zhi Ming

doi:10.2307/2329564

Cited by 25 publications

(19 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This particular issue took center stage after the crash of October 1987, when critics claimed that increased activity in 2 See Clark (1973), Epps and Epps (1976), Grammatikos and Saunders (1986), Harris (1987), and Tauchen and Pitts (1983). 3 Models that rely on different types of traders to develop the relation between trading activity and price formation include Admati and Pfleiderer (1988), Brown and Zhang (1997), Easley and O'Hara (1987), Foster and Viswanathan (1990), Glosten and Milgrom (1985), Holden and Subrahmanyam (1992), Kyle (1985), Shalen (1993), Spiegel and Subrahmanyam (1992), and Subrahmanyam (1991). 4 Bessembinder et al (1996) and Harris and Raviv (1993) labeled this phenomenon differences of opinion, whereas Bamber, Barron, and Stober (1999) pointed to differential interpretation of information as a cause of both volume and volatility.…”

Section: Literature Reviewmentioning

confidence: 99%

Volume and Volatility Surrounding Quarterly Redesignation of the Lead S&P 500 Futures Contract

Kawaller¹,

Koch

Peterson

2001

Journal of Futures Markets

View full text Add to dashboard Cite

microstructure of the futures exchange rather than new information or underlying volatility conditions. The event thus offers us an opportunity to examine how volatility responds to noninformation-based exogenous changes in volume. This study examines the volatility behavior of nearby and next out S&P 500 futures contracts on the 10 days surrounding quarterly redesignation of the lead contract. Our model measures possible changes in (a) the level of volatility and/or (b) the association between volume and volatility after redesignation of the lead contract. Results indicate that when we account for the association between volume and volatility, the higher volume lead contract consistently experiences a lower level of volatility. This outcome supports the view that the larger population of liquidity providers who trade the more active lead contract fosters greater market depth and lower volatility.

show abstract

Section: Literature Reviewmentioning

confidence: 99%

Volume and Volatility Surrounding Quarterly Redesignation of the Lead S&P 500 Futures Contract

Kawaller¹,

Koch

Peterson

2001

Journal of Futures Markets

View full text Add to dashboard Cite

show abstract

“…In this sense, order-driven market making is similar to quote-driven market making; the bid-ask spread represents expected compensation for the costs of supplying immediacy. Which of the two mechanisms is the lowest cost liquidity provider is an open empirical issue, although recent theoretical results by Glosten (1994) and Brown and Zhang (1997) suggest certain advantages for the limit order book.…”

Section: Introductionmentioning

confidence: 99%

Bid‐ask Spread Components in an Order‐driven Environment

Brockman

Chung

1999

J of Financial Research

View full text Add to dashboard Cite

The purpose of this study is to extend the bid‐ask spread decomposition literature into the order‐driven environment. The use of electronic limit order books, combined with order‐driven market making, has been increasing rapidly in recent years because of improvements in information technology and financial market deregulation. To date, reported bid‐ask spread decompositions rely almost exclusively on quote‐driven or hybrid systems. This study provides bid‐ask spread component estimates from one of the world's largest order‐driven markets, the Stock Exchange of Hong Kong. Based on a sample of over six million observations, we estimate a median adverse selection component of 33 percent and a median order processing component of 45 percent of the spread. Dollar‐volume‐based decile portfolios show significant cross‐sectional variation for adverse selection costs but insignificant variation for order processing costs. Finally, order persistence is consistently positive for all deciles and displays a direct relation with the level of trading activity.

show abstract

“…The experiment presented here is related to the model described in Rindi (2003). This model is a generalization of Brown and Zhang (1997) and extends the central idea embedded in the standard Grossman and Stiglitz's (1980) setup to show that, when prices are fully revealing, there is no incentive to buy information. Experimental results are consistent with the theoretical predictions, according to which transparency reduces the incentive to acquire information, the equilibrium number of informed traders and the liquidity of the market.…”

Section: Introductionmentioning

confidence: 90%

Market for Information and Identity Disclosure in an Experimental Open Limit Order Book

Perotti¹,

Rindi²

2006

Economic Notes

View full text Add to dashboard Cite

This paper analyses the effects of pre-trade transparency on market quality in an experimental open limit order book preceded by a market for information. The design of the trading game is akin to the system in use in an increasing number of financial markets. We find that the disclosure of traders' identities reduces the incentive to acquire information, liquidity and volatility. We also show that a positive relation exists between the proportion of traders buying information and liquidity. The results are consistent with a standard model of price formation where the number of informed traders is endogenous.(J.E.L.: D84, G14)

show abstract

Market Orders and Market Efficiency

Cited by 25 publications

References 0 publications

Volume and Volatility Surrounding Quarterly Redesignation of the Lead S&P 500 Futures Contract

Volume and Volatility Surrounding Quarterly Redesignation of the Lead S&P 500 Futures Contract

Bid‐ask Spread Components in an Order‐driven Environment

Market for Information and Identity Disclosure in an Experimental Open Limit Order Book

Contact Info

Product

Resources

About