Price clustering on the limit-order book : Evidence from the Stock Exchange of Hong Kong

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

36 Scopus Citations
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Author(s)

  • Hee-Joon Ahn
  • Jun Cai
  • Yan Leung Cheung

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)421-451
Journal / PublicationJournal of Financial Markets
Volume8
Issue number4
Publication statusPublished - Nov 2005

Abstract

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. © 2005 Elsevier B.V. All rights reserved.

Research Area(s)

  • Asymmetry in price clustering, Electronic limit-order book, Price clustering, Short sale restrictions