Research on the Relative Contribution of Ask and Bid Quotes to Price Discovery in Chinese Stock Market

Abstract

Abstract:

Based on the IS model, we measure the information content of ask and bid quotes in the short-run, using the high frequency trading data in Shanghai Stock Exchange, in order to research their contribution to price discovery. The result shows that the contribution of ask and bid quotes to price discovery is different in the short trading period and the magnitude of this difference is bigger among stocks with small market value. Further, we establish a long panel data regress model to explore the influencing factors of the relative contribution of ask and bid quotes, which shows that the relative contribution has positive relations with stock return, order imbalance and the difference between elasticity of quotes. This research is a significant supplement to price discovery theory in the market microstructure and also provides necessary references for high frequency trading investors.

Key words: ask and bid quotes, price discovery, order imbalance, elasticity

Wang Chunfeng, Ma Dan, Fang Zhenming, Huang Ning. Research on the Relative Contribution of Ask and Bid Quotes to Price Discovery in Chinese Stock Market[J]. , 2018, 30(6): 3-12.

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