Information content of time durations of limit order book updates

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Zhu, Zheting
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The limit order book (LOB) of an exchange contains detailed information about the trading process. Research performed using LOB data has focused on bid-ask spreads, quotes and depths at different LOB levels. However, other studies argue that the timing of trades also conveys information to market participants. Informed traders submit orders only when new information enters the market, so long as durations between trades suggest that there is no new information and short durations indicate the presence of “informed” orders. Most research related to durations is based on transaction data, but less is known about the information carried by the time duration of events in the LOB. The objective of this research is to assess the effect of the duration of LOB updates on the price discovery process in agricultural futures markets. We estimate a measure of information share to examine the contribution of quotes, depth, and time durations on transaction prices. Our findings suggest that LOB durations do convey information. It is found that, on average, depth has a larger contribution to prices relative to durations, and that more information is concentrated in the first two levels of the LOB.
Agricultural futures market, Information Share, Limit order book, High frequency trading data, Electronic trading