Order Aggressiveness on the ASX Market

Abstract

This paper investigates how traders on the Australian Stock Exchange (ASX) market make their joint decision on price aggressiveness and quantity when they submit an order, based on information from limit order book and stock price movement. We use a simultaneous-equation system including an Ordered Probit model to account for the discrete nature of price aggressiveness and an OLS model to fit the continuous quantity. The results suggest a negative trade-off between price aggressiveness and quantity. Factors such as depths at the best quotes, bid-ask spread, volatility and price changes are major determinants of the traders’ order submission decision. This paper also provides evidence for a U-shaped intraday pattern of order flows and positive serial correlation in order type.