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Trading Patience, Order Flows, and Liquidity in an Index Futures Market

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  • Caihong Xu

Abstract

This study investigates the limit order book characteristics and the intertwined dynamics between trading patience, order flows, and liquidity in an index futures market. The limit order book displays a hump shape and the steepness of the hump is positively related to the number of large market orders. Bid and ask prices tend to move together in the same direction. Moreover, higher proportion of patient traders and higher order arrival rate lead to higher liquidity, after controlling for volatility and the intraday time effect. Liquidity is found to have a feedback effect on trading patience and the order arrival rate. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 34:731–756, 2014

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  • Caihong Xu, 2014. "Trading Patience, Order Flows, and Liquidity in an Index Futures Market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 34(8), pages 731-756, August.
    • Handle: RePEc:wly:jfutmk:v:34:y:2014:i:8:p:731-756
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    Cited by:

    1. Ai Jun Hou & Lars L. Nordén & Caihong Xu, 2024. "Futures trading costs and market microstructure invariance: Identifying bet activity," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(6), pages 901-922, June.
    2. Chu, Gang & Zhang, Yongjie & Zhang, Xiaotao, 2021. "An analysis of impact of cancellation activity on market quality: Evidence from China," Economic Modelling, Elsevier, vol. 102(C).
    3. Kyungsub Lee & Byoung Ki Seo, 2021. "Analytic formula for option margin with liquidity costs under dynamic delta hedging," Papers 2103.15302, arXiv.org.
    4. Alex Frino & Ognjen Kovačević & Vito Mollica, 2019. "Depths and spreads in futures markets: Relationship with order execution, submission, and cancellation," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(5), pages 590-599, May.

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