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Order Imbalance and Its Impact on Market Performance: Order‐driven vs. Quote‐driven Markets
Author(s) -
Huang Yu Chuan,
Chou JianHsin
Publication year - 2007
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2007.02038.x
Subject(s) - futures contract , futures market , order (exchange) , market liquidity , order book , volatility (finance) , market impact , financial economics , economics , market depth , market microstructure , price discovery , monetary economics , stock market , business , finance , paleontology , horse , biology
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.