Are Order-Driven Markets Informationally Richer? Evidence From The Paris Bourse

The author examines the information content of a limit order book in a purely order-driven market. Using intra-day order book and trade data from the Paris Bourse, the author finds that order imbalances at the best quotes have incremental information content over trade imbalances in explaining future price movements and volatility. In addition, the author hypothesizes and finds a positive relation between imbalances caused by new orders and future returns. Evidence on the role of order cancellations in explaining future returns is mixed. One result indicates that purely order-driven markets provide an additional source of public information.