The Relation between Intraday Limit Order Book Depth and Spread

Prior studies that examine the relation between market depth and bid–ask spread are often limited to first level of limit order book. However, full book provides important information beyond about spread, which affects trading decisions participants. This paper examines intraday behavior in five-deep a futures setting. A dummy-variables regression framework is employed estimated using generalized method moments (GMM). Results indicate an inverse U-shaped pattern for increasing spread. After controlling known explanatory factors, documented. The holds at individual levels as well. participants actively manage both price (spread) quantity (depth) dimensions liquidity along