Hee-Joon Ahn

Limit Orders, Depth, and Volatility: Evidence from the Stock Exchange of Hong Kong

We investigate the role of limit orders in the liquidity provision in a pure order-driven market. Results show that market depth rises subsequent to an increase in transitory volatility, and transitory volatility declines subsequent to an increase in market depth. We also examine how transitory volatility affects the mix between limit orders and market orders. When transitory volatility arises from the ask (bid) side, investors will submit more limit sell (buy) orders than market sell (buy) orders. This result is consistent with the existence of limit-order traders who enter the market and place orders when liquidity is needed. Copyright The American Finance Association 2001.

The components of the bid-ask spread in a limit-order market: evidence from the Tokyo Stock Exchange

Abstract This paper analyzes the components of the bid–ask spread in the limit-order book of the Tokyo Stock Exchange (TSE). While the behavior of spread components in U.S. markets has been extensively studied, little is known about the spread components in a pure limit-order market. We find that both the adverse selection and order handling cost components of the TSE exhibit U-shape patterns independently, in contrast to the findings of Madhavan et al. [Rev. Financ. Stud. 10 (1997) 1035] for U.S. stocks. On the TSE, there does not exist an upstairs market that allows large trades to be prenegotiated or certified as on the New York Stock Exchange (NYSE). This feature of the TSE provides a valuable opportunity to examine the relationship between trade size and spread components. Our results show that the adverse selection cost increases with trade size while order handling cost decreases with it.

Information Asymmetry and Trading Behavior by Investor Types Around the Bond-Rating Change Announcements

This study examines the stock-market reactions to public announcements (corporate bond-rating changes), in association with stock prices and investor behavior on trading volumes and trading patterns in the Korean stock market, a representative leading emerging market. Abnormal returns, abnormal volumes, and net order imbalance are estimated, using the high-quality and unique transaction data of Korean firms whose bonds have been rated by Korea Investors Service, NICE Investors Service, and Korea Ratings between 2000 and 2015. Our empirical finding shows positive (negative) abnormal stock returns around upgrades (downgrades), although stock-price reactions to downgrades are statistically more significant than those to upgrades, consistent with findings from previous studies. Significant abnormal volumes and order imbalances are found around rating changes, and the extent to which each investor group (domestic individuals, domestic institutions, and foreign investors) reacts to rating changes varies, which provides evidence for information superiority of domestic institutional investors and foreign investors in the Korean stock market.