An Empirical Analysis Of Limit Order Book And Order Flow In China Stock Market

Based on the market microstructure theory, the dissertation adopts empiricalmethodology to investigate the limit-order trade under the pure order-driven tradingsystem. From the view of limit-order book and order flow, the paper discusses therole of limit-order trade in price formation, liquidity providing, the stability of themarket, and especially the self-balance nature of the electronic limit-order tradingsystem, according to the analysis on the market microstructure and the empiricalstudy on substantial intra-day data in China Stock Market.The dissertation is organized in three parts as follows, with the limit-order bookand order flow as core elements. The first part, which is composed by Chapter 3 andChapter 4, investigates the inherent features and rules of the limit-order trade, throughthe comprehensive study of the limit-order book, and then discusses the effect of thelimit-order book status on the price movement in a relative long term. The secondpart, including Chapter 5 and Chapter 6, studies the order flow events, and then thedynamics of limit-order book and order flow. The third part, which is Chapter 7 in thepaper, focuses on the transitory volatility in China Stock Market, from the view oflimit-order book and order flow, respectively. Through the dynamic analysis on thelimit-order trade and transitory volatility, the paper comes to the conclusion that thelimit-order trade and the transitory volatility are not self-balance, and claimsempirically the instability in China Stock Market, as well as the institutional reasonsbehind it.The most important contribution of the dissertation is to initiate the study on thelimit-order book and order flow, which is the key point in an electronic limit-ordertrading system, established on the institutional background and the reality in ChinaStock Market and brought into the market microstructure framework, which is thefront line of the research on the security market. In the closing part, series of policysuggestions are put forward for improving the dynamic relationship between thelimit-order trade and the investors' behavior, and making full use of the inherentself-balance system in the electronic limit-order trading environment, based on themarket microstructure theory.