Scandinavian Working Papers in Economics
Umeå Economic Studies,
Umeå University, Department of Economics
No 687: Does the Open Limit Order Book Reveal Information About Short-run Stock Price Movements?
Jörgen Hellström () and Ola Simonsen ()
Additional contact information
Jörgen Hellström: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Ola Simonsen: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Abstract: This paper empirically tests whether an open limit order book contains information about future short-run stock price movements. To account for the discrete nature of price changes, the integer-valued autoregressive model of order one is utilized. A model transformation has an advantage over conventional count data approaches since it handles negative integer-valued price changes. The empirical results reveal that measures capturing offered quantities of a share at the best bid- and ask-price reveal more information about future short-run price movements than measures capturing the quantities offered at prices below and above. Imbalance and changes in offered quantities at prices below and above the best bid- and ask-price do, however, have a small and significant effect on future price changes. The results also indicate that the value of order book information is short-term.
Keywords: Negative integer-valued data; time series; INAR; finance; stock price; open limit order book
26 pages, August 24, 2006
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