1. Order Imbalance and Its Impact on Market Performance: Order-driven vs. Quote-driven Markets
- Author
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Huang, Yu Chuan and Chou, Jian-Hsin
- Subjects
Banking, finance and accounting industries ,Business - Abstract
To purchase or authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1468-5957.2007.02038.x Byline: Yu Chuan Huang (1), Jian-Hsin Chou (1) Keywords: order imbalance; bid-ask spread; order-driven; quote-driven Abstract: Abstract: The behavior of order imbalance and its impact on market performance at the two Taiwan stock index futures markets, the TAIFEX and the SGX-DT, is investigated. The TAIFEX is an order-driven call market, while the SGX-DT uses a quote-driven continuous trading system. Our empirical results show that for the TAIFEX order-driven market, the spread is minimized when order imbalance is high. In contrast, for the SGX-DT quote-driven market, the spread is highest when order imbalance is high. For both markets, order imbalance has an impact on market liquidity and volatility. The impact is larger and more significant for SGX-DT futures. This suggests that the order-driven market mechanism of TAIFEX futures is superior in absorbing order imbalance and in reducing the resulting price impact. Author Affiliation: (1)The authors are from the National Kaohsiung First University of Science and Technology. Article History: (Paper received February 2005, revised version accepted February 2007) Article note: (*) Address for correspondence: Yu Chuan Huang, Department of Risk Management and Insurance, National Kaohsiung First University of Science and Technology, 2 Juoyue Road, Nantsu, Kaohsiung 811, Taiwan, ROC. e-mail: ychuang@ccms.nkfust.edu.tw
- Published
- 2007