Empirical shape function of limit-order books in the Chinese stock market

TL;DR

This paper empirically analyzes the shape of limit-order books in the Chinese stock market, revealing exponential tail behavior, periodic peaks, and long-memory effects in order volume distributions.

Contribution

It provides detailed empirical characterization of LOB shape functions in the Chinese stock market using high-frequency data, highlighting novel periodic and distributional features.

Findings

LOB shape peaks periodically every five levels

LOB shape exhibits exponential tail behavior

Order volumes follow lognormal distributions with power-law tails

Abstract

We have analyzed the statistical probabilities of limit-order book (LOB) shape through building the book using the ultra-high-frequency data from 23 liquid stocks traded on the Shenzhen Stock Exchange in 2003. We find that the averaged LOB shape has a maximum away from the same best price for both buy and sell LOBs. The LOB shape function has nice exponential form in the right tail. The buy LOB is found to be abnormally thicker for the price levels close to the same best although there are much more sell orders on the book. We also find that the LOB shape functions for both buy and sell sides have periodic peaks with a period of five. The 1-min averaged volumes at fixed tick level follow lognormal distributions, except for the left tails which display power-law behaviors, and exhibit long memory. Academic implications of our empirical results are also discussed briefly.