TY - JOUR
T1 - Price clustering on the limit-order book
T2 - Evidence from the Stock Exchange of Hong Kong
AU - Ahn, Hee Joon
AU - Cai, Jun
AU - CHEUNG, Stephen Y L
N1 - Funding Information:
We are grateful for useful comments from Hyuk Choe, Oliver Hansch, Sunho Kim, Beni Lauterbach, Bruce Lehmann (the editor), an anonymous referee, and seminar participants at the 2005 Korea Economics Joint Conference, Korea University, and Sungkyunkwan University. We would also like to thank City University of Hong Kong for providing support. Financial support from RGC Competitive Earmarked Research Grants 2002–2003 (Cai) is gratefully acknowledged. Caroline Biebuyck and Harriet Bergmann provided the editorial assistance.
PY - 2005/11
Y1 - 2005/11
N2 - We examine the clustering pattern in trade and quote prices on the electronic limit order book of the Stock Exchange of Hong Kong (SEHK). Earlier research into clustering focuses on transaction prices only. We study clustering on quote prices over a maximum of five queues on the limit order book. We observe an abnormally high frequency of even and integer prices in trade and quote prices for all tick size groups on the SEHK. The deeper quotes display stronger clustering than the best quotes, indicating that the farther away the quotes are from the best queue, the less information they carry. Our analysis further reveals that an extremely fine tick size itself works as a binding constraint to hinder the price resolution process. We also find that short sale prohibition imposed on the majority of stocks listed on the SEHK causes a significant bias in clustering towards the ask side of the limit order book. This implies that a short sale prohibition impairs efficient price discovery in the market.
AB - We examine the clustering pattern in trade and quote prices on the electronic limit order book of the Stock Exchange of Hong Kong (SEHK). Earlier research into clustering focuses on transaction prices only. We study clustering on quote prices over a maximum of five queues on the limit order book. We observe an abnormally high frequency of even and integer prices in trade and quote prices for all tick size groups on the SEHK. The deeper quotes display stronger clustering than the best quotes, indicating that the farther away the quotes are from the best queue, the less information they carry. Our analysis further reveals that an extremely fine tick size itself works as a binding constraint to hinder the price resolution process. We also find that short sale prohibition imposed on the majority of stocks listed on the SEHK causes a significant bias in clustering towards the ask side of the limit order book. This implies that a short sale prohibition impairs efficient price discovery in the market.
KW - Asymmetry in price clustering
KW - Electronic limit-order book
KW - Price clustering
KW - Short sale restrictions
UR - http://www.scopus.com/inward/record.url?scp=27644567359&partnerID=8YFLogxK
U2 - 10.1016/j.finmar.2005.07.001
DO - 10.1016/j.finmar.2005.07.001
M3 - Journal article
AN - SCOPUS:27644567359
SN - 1386-4181
VL - 8
SP - 421
EP - 451
JO - Journal of Financial Markets
JF - Journal of Financial Markets
IS - 4
ER -