Trading Patience, Order Flows, and Liquidity in an Index Futures Market

Abstract

This study investigates the limit order book characteristics and the intertwined dynamics between trading patience, order flows, and liquidity in an index futures market. The limit order book displays a hump shape and the steepness of the hump is positively related to the number of large market orders. Bid and ask prices tend to move together in the same direction. Moreover, higher proportion of patient traders and higher order arrival rate lead to higher liquidity, after controlling for volatility and the intraday time effect. Liquidity is found to have a feedback effect on trading patience and the order arrival rate.

Order Aggressiveness, Trading Patience, and Trader Types in a Limit Order Market

“…His model has several interesting empirical implications for bid‐ask prices, the temporary price impacts of market orders versus limit orders, characteristics of the dynamics of the limit order book (a hump‐shape order book), and a comovement effect in direction in bid‐ask prices. Xu () provides empirical evidence that the limit order book of OMXS 30 index futures markets exhibits a hump shape, which is consistent with the prediction from the theoretical model by Rosu ().…”

“…Thus, there is an inverse relationship between order aggressiveness and traders’ degree of trading patience. We follow a proxy measure of trading patience suggested by Xu (). Trading patience by all types of traders in 15‐minute intervals is measured as follows: where the SLO t and BLO t are the sums of the sell and buy side limit orders, excluding marketable limit orders,…”

“…Xu () examines the shape of the limit order book, trading patience, co‐movements in bid‐ask spreads, and liquidity in the OMXS 30 index futures market. She did not, however, consider order aggressiveness by trader types in the OMXS 30 index futures markets.…”

Depths and spreads in futures markets: Relationship with order execution, submission, and cancellation

“…Previous related research includes Hautsch and Huang (2012) and Xu (2014). Previous related research includes Hautsch and Huang (2012) and Xu (2014).…”

“…Previous related research includes Hautsch and Huang (2012) and Xu (2014). Xu (2014) analyzes OMXS 30 index futures traded on the Nasdaq OMX Group. Such models simply regress bid-ask spreads or depth on trading activity, price volatility, and the price level.…”