| Publisher | University of Pennsylvania | ||
|---|---|---|---|
| Format | 472.3KB PDF, requires Acrobat Rdr 5 | Date added | 01 Jul 1999 |
| Topics | Economic Modeling | ||
| Downloads | 18 | ||
In this paper, I estimate and test a model of liquidity provision in a pure limit order market based on Glosten (1994). The estimation strategy is directly based on restrictions on quotes and depths in the limit order book implied by the theoretical model. I find strong evidence of insufficient depth in the limit order books relative to the model predictions. For most stocks, an extended version of the model with a state dependent market order distribution predicts depths and price revisions that are closer to the empirically observed ones.
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