Abstract:
In this paper, we study the determinants of order aggressiveness and
traders' order submission strategy in an open limit order book market. Applying an
order classification scheme, we model the most aggressive market orders, limit
orders as well as cancellations on both sides of the market employing a sixdimensional
autoregressive conditional intensity model. Using order book data
from the Australian Stock Exchange, we find that market depth, the queued
volume, the bid-ask spread, recent volatility, as well as recent changes in both the
order flow and the price play an important role in explaining the determinants of
order aggressiveness. Overall, our empirical results broadly confirm theoretical
predictions on limit order book trading. However, we also find evidence for
behavior that can be attributed to particular liquidity and volatility effects.
