The Order Book and Limit Orders at NASDAQ Stockholm

University essay from Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Abstract: This study compares time interval relationships between events (any market action, e.g., buying, cancelling an order, placing a passive order etc.) on the NASDAQ Stockholm exchange today with the relationships found on the Paris Bourse in 1995 in a study by (Biais, Hillion et al. 1995), to provide insights into modern limit order book characteristics. The research is conducted by reconstructing the order book and aggressive orders from messages disseminated through the NASDAQ Nordic Equity TotalView (NETV) ITCH system. This is followed by classifying the events according to their aggressiveness. Time intervals are then analysed conditional on previous time interval lengths, previous spread sizes, previous event classes, and by creating event sequences. Results point towards patterns in (Biais, Hillion et al. 1995) still being generally true, with market interactions happening several orders of magnitude faster today. Furthermore, results show a tendency towards greater differences between conditional intervals and the unconditional interval, and evidence of an increased information value of passive orders.

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