Correlation Study Of Stock Market Depth And Intraday Price Movement

Real-time stock quotes software announces the latest information of the book.Market depth is one of the important factors reflecting book information, which isalso an important reference for investors choose to submit trading orders. About thecorrelation between the averaged difference of market depth and intraday pricemovements, generally believed the market is bullish on the bid side is deeper. ButExperienced investors takes the opposite view, they believe the market is bullish onthe ask side is deeper. The core of this paper is to explore the relationship betweenmarket depth and intraday price movements by empirical research.In reference on the basis of related research at home and abroad, this paperdemonstrates the market depth will affect orders selection for investors. The resultshows that the deeper of one’s own market depth, the more active of one’s owninvestors. This paper also discusses the impact of different types of orders issued onthe stock price changes. The result shows that the ask (bid) orders can be directly orindirectly to promote the stock price to decline (rise).This paper takes Shanghai and Shenzhen300stock index futures (hereinafterreferred to as CSI300index futures) main contract as an example, at first,analysesthe relationship between the averaged difference of market depth and intraday pricemovements by building a regression model and a VAR model. The result shows thatthere is a positive correlation, that the market is bullish on the ask side is deeper.The result also show that return unidirectional guide the market depth.This papergive a reasonable explanation from the investor demand for liquidity.Afterwards, This paper demonstrates the market depth will affect orders flowby empirical research. Depending on whether the mid-price change, the marketorders price subdivides into positive and negative market orders the limit orderssubdivides into the spread orders and book orders. On this basis, this paper buildsfour binary choice models analyzes the influence of the market depth to ordersselection for investors. The result shows that when ask side is deeper than bid side,buyers are more inclined to submit positive market orders, negative market ordersand spread orders, sellers tend to submit book orders. The result is different fromtheoretical conclusion, this paper gives a reasonable explanation from informationasymmetry. At the same time, this paper analyzes the impact of commission tradeimbalance on return by building a multiple regression model. The result showsabout50%percent of return can be explained by four types of orders imbalance.