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Market Microstructure of an Order Driven Market

Market Microstructure of an Order Driven Market


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About the Book

This dissertation, "Market Microstructure of an Order Driven Market" by Ming-yan, William, Cheung, 張明恩, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Abstract of thesis entitled MARKET MICROSTRUCTURE OF AN ORDER DRIVEN MARKET submitted by Ming-yan, William, Cheung for the Degree of Doctor of Philosophy at The University of Hong Kong in September 2004. In this thesis, we conduct a comprehensive and in-depth analysis of a prototype pure order-driven market, the Hong Kong Stock Exchange. Specifically, we explore two main market microstructure issues in this order-driven stock market. The first issue is the use of trading activity to explain spread and the second issue is the dynamic relationship between limit and market order in the order flow composition. We propose two concepts in each for each issue, namely the Order aggressiveness and Order flow cycle. First, we find that the intraday spread exhibit two U-shaped patterns in the morn- ing and the afternoon. We solve the puzzle of volume effect on spread as our results show that in an order-driven market, the spread is lower when the transaction volume is higher in last period. This means the transaction volume is reflecting more of the econ- omy of scale in transaction cost, than information asymmetry among traders since the higher asymmetry should widen the spread. We introduce the order aggressiveness as an alternativemeasureoftradingactivityandarguethatitworksbetterinreflectingtheliq- uidity demand and thus, degree of asymmetric information among traders. Furthermore, the estimated order processing component in spread is about 33% while the estimated asymmetric information component is only 14%, suggesting that order processing cost is the major binding component of spread in the Hong Kong stock market. Also, the asymmetric information component in the Hong Kong stock market is much lower than that in specialist or dealership markets.In the second part of the thesis, we examine the effect of different market status and time-of-a-day factor on the order flow ocmposition. We propose the concept of Cycle of Order Flow on top of traditional order flow composition and derive useful hypotheses. We find that increase in number of limit orders attracts trades, then this consumption of liquidity attracts limit orders, which completes the cycle of order flow. The spread has a significant negative effect on number of market orders while the order size has significant negativeeffectonthenumberoflimitorders. Thenumberofblocktradingincreaseswith more limit order at- or within-the-quote while the number of small size trading decreases with more limit orders available within-the-quote. In an pure order-driven market, without any market makers, although the market participants are only trading for their own beliefs and benefit, our analysis show that their limit and market orders make up the market and create an equilibrium between demand and supply of liquidity, consequently construct the cycle of order flow. DOI: 10.5353/th_b3203782 Subjects: Stock exchanges - Mathematical models Stock exchanges - China - Hong Kong


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Product Details
  • ISBN-13: 9781361059067
  • Publisher: Open Dissertation Press
  • Publisher Imprint: Open Dissertation Press
  • Height: 279 mm
  • No of Pages: 106
  • Weight: 263 gr
  • ISBN-10: 1361059060
  • Publisher Date: 26 Jan 2017
  • Binding: Paperback
  • Language: English
  • Spine Width: 6 mm
  • Width: 216 mm


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