Characteristics of Observed Limit Order Demand and Supply Schedules for Individual Stocks / Jung-Wook Kim, Jason Lee, Randall Morck.

Format:

Book

Author/Creator:

Kim, Jung-Wook.

Contributor:

National Bureau of Economic Research.

Lee, Jason.

Morck, Randall.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14733.

NBER working paper series no. w14733

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

Using complete order books from the Korea Stock Exchange for a four-year period including the 1997 Asian financial crisis, we observe (not estimate) limit order demand and supply curves for individual stocks. Both curves have demonstrably finite elasticities. These fall markedly, by about 40%, with the crisis and remain depressed long after other economic and financial variables revert to pre-crisis norms. Superimposed upon this common long-term modulation, individual stocks' supply and demand elasticities correlate negatively at high frequencies. That is, when a stock exhibits an unusually elastic demand curve, it tends simultaneously to exhibit an unusually inelastic supply curve, and vice versa. These findings have potential implications for modeling how information flows into and through stock markets, how limit order providers react or interact to information flows, how new information is capitalized into stock prices, and how financial crises alter these processes. We advance speculative hypotheses, and invite further theoretical and empirical work to explain these findings and their implications.

Notes:

Print version record

February 2009.