An empirical analysis of the Shanghai and Shenzhen limit order books

Huimin Chung, Cheng Gao, Jie Lu, Bruce Mizrach*

*Corresponding author for this work

Research output: Contribution to journalArticle

3 Scopus citations

Abstract

This paper investigates the market microstructure of the Shanghai and Shenzhen Stock Exchanges. The two major Chinese stock markets are pure order-driven trading mechanisms without market makers, and we analyze empirically both limit order books. We begin our empirical modeling using the vector autoregressive model of Hasbrouck and extend the model to incorporate other information in the limit order book. We also study the market impact on A shares, B shares and H shares, and analyze how the market impact of stocks varies cross sectionally with market capitalization, tick frequencies, and turnover. Furthermore, we find that market impact is increasing in trade size. Order imbalances predict the next day's returns, with small order imbalances having a negative effect.

Original languageEnglish
Pages (from-to)37-41
Number of pages5
JournalEconomic Modelling
Volume34
DOIs
StatePublished - 1 Aug 2013

Keywords

  • Chinese stock market
  • Limit order book
  • Microstructure
  • VAR model

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