Characterizing limit order books in call auctions of a stock market

TL;DR

This paper analyzes the structure of limit order books in call auctions on the Tokyo Stock Exchange, revealing consistent shapes, defining key parameters, and linking deviations to company profitability.

Contribution

It introduces a simple hyperbolic tangent model for limit order book shapes in call auctions and connects structural parameters to market and company performance.

Findings

Limit order book shapes fit a hyperbolic tangent function.

The ratio of width to median spread is similar across stocks.

Deviations in this ratio indicate companies with outstanding profits.

Abstract

Statistical and dynamical characters of stock markets have been extensively studied, which now is providing the firm basis for econophysics and its application as ``stylized facts''. However, most of those studies are for markets under the continuous auction, i.e. trades are executed sequentially. There has been less research on another major type of auction, call auctions, where orders are accumulated and those are executed at once in the final moment. This study focuses on the structure of the limit order books of stocks under the call auctions. Using the data of all stocks listed in the Tokyo Stock Exchange, we find that the shape of the limit order books in call auctions are well fitted by a simple functional form of hyperbolic tangent. From the fitting, we define the ``median spread'' and the ``width'' of limit orders. The ratio of the ``width'' to the ``median spread'' of most stocks are found to be similar, indicating that the execution ratio (the trading volume relative to the total number of orders) are nearly equal among them. Furthermore, the deviation in this ratio from the majority is found to be a good indicator for finding the stocks of the companies making outstanding profit. Our results demonstrate that those parameters of the structure of the limit order book well characterizes the states of the market under call auctions.