Limit Order Book Indicator And Market Volatility

Given the particular features of the structure of investors in China,market manipulation is common.As a result of these abnormalities,which are usually manifested in extremely narrow time period,traditional indicators appear to be inadequate in describing the volatility of the market.This paper resorts to LOB slope to monitor these micro abnormalities.The indicator offers not only a more comprehensive observation of the market,but also insights of the nuanced changes in the limit order book.In addition,LOB slope well captures the second-based rapid changes in the market.This paper,through an empirical research on Chinese financial market,with the 5-second high frequency data,finds out a significant correlation between LOB slope and market volatility,though the correlation between the two indicators behaves differently in foreign financial markets.The purpose of this paper is to study the relationship between the order book slope index and market volatility,and to explore the order book information and market manipulation behavior.Consistent with the knowledge of common sense,when the depth of market orders is insufficient,the volatility tends to increase.We find that the slope of the seller's order book,Sslope,is significantly negatively correlated with market volatility,which is also the same as the previous researcher's conclusion.However,we have found some conclusions that are contrary to common sense:First,the slope of the buyer's order book,Bslope,is positively correlated with market volatility.Second,we found that the Slope data of large,medium and small-cap stocks showed an inverted phenomenon.Contrary to the impression that large-cap stocks generally think that they are more resistant to price shocks,we find that small-cap stocks have the largest B/Sslope,followed by Chinese stocks,and finally large-cap stocks.We believe that these differences with the findings of empirical research by foreign researchers are inextricably linked to the market trading system,the structure of traders,and the behavior of traders.Institutions have stronger trading power than retail investors.Whether it is the formulation of trading strategies or the submission of trading orders,the results tend to be better.Therefore,from a macro perspective,a market with a high proportion of institutional investors tends to be more mature,with less bubbles in the market and stronger resistance to systemic risks.Our country is currently in the transitional stage of entering the institutional market from the retail market,during which various kinds of market visions are inevitable.We believe that market manipulation can be well characterized by the Slope indicator.In the two months of data adoption,December is the market's adjustment period because November is mainly the rising stage of the market.For operators,when the market goes bad,their maneuvering space will be greatly reduced.This is why,from a data point of view,our indicators are all very significant in December.In November,during the period of stable market growth,it was the most active period of market manipulation.They usually use the market manipulation behavior to accumulate market sentiment against the target stocks,which makes the liquidity of the small liquidity stocks that were originally liquidity very large,showing full liquidity.In addition,frequent manipulations such as singling and pressing singles also undermine Slope's original laws.The observation of these manipulation details and tactics is difficult to achieve by statistical means alone.This is precisely the purpose of this article.Based on this phenomenon,this study believes that some market visions can be alerted and supervised according to the slope of the order book.