What pieces of limit order book information do are informative? An empirical analysis of a pure order-driven market

Abstract

This paper studies the importance of different pieces of limit order book information in characterizing order aggressiveness and the timing of trades, order submissions and cancellations. Using limit order book information on liquid and frequently traded Spanish stock, we evidence that most of the explanatory power of the book concentrates on the best quotes. However, the book beyond the best quotes also matters in explaining the aggressiveness of traders. Liquidity providers benefit more from an increased degree of pre-trade transparency than liquidity consumers. Finally, no piece of book information matters in explaining the timing of orders.