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Information content of the limit order book: A cross-sectional analysis in Borsa Istanbul

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  • Çağlayan-Gümüş, Ayşe
  • Karahan, Cenk C.

Abstract

This study investigates the contribution of the limit order book to the price discovery process of blue-chip stocks traded on Borsa Istanbul. Using various price series, including the last trade price, best prices of the order book, and price steps beyond the best price levels, we measure the contribution of orders beyond the best prices to price discovery. This contribution is evaluated through information shares. Our findings highlight the significant informational role of the order book in price discovery, emphasizing its importance alongside trading activity for a comprehensive understanding of the market. Additionally, this analysis is conducted across distinct stock characteristics, specifically return, size, volume, and illiquidity, revealing notable variations in the information share of the limit order book.

Suggested Citation

  • Çağlayan-Gümüş, Ayşe & Karahan, Cenk C., 2024. "Information content of the limit order book: A cross-sectional analysis in Borsa Istanbul," Global Finance Journal, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:glofin:v:62:y:2024:i:c:s1044028324000929
    DOI: 10.1016/j.gfj.2024.101020
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    More about this item

    Keywords

    Information share; Limit order book; Market microstructure; Price discovery;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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