Asymmetric effects of the limit order book on price dynamics

The objective of this paper is to analyze how the information embedded in different parts limit order book (LOB) affects price dynamics. We distinguish between slopes lower and higher levels bid ask sides include them a linear vector autoregressive system, along with midquote return trade direction, as Hasbrouck (1991). have significantly greater (in terms absolute value) immediate effects on prices than do corresponding levels. slope variable are reversed when we take cumulative into consideration, suggesting that overreact LOB. Furthermore, reversal stronger for levels, resulting being smaller those link asymmetries existence more patient traders, line recent theoretical findings. Finally, show ignoring these might cost high-frequency day trader 16 25 basis points monthly profits.