Evidence of Price Change Volatility Induced by the Number and Proportion of Orders of a Given Size

Abstract

We examine the contribution of order flow parameters (order size, number of orders and proportions of orders conditioned on order size) to the volatility of price change. To a lesser extent, we also examine the impact of these parameters on the mean of price change. Innovations in this study include the use of orders rather than trades and the testing of robustness of results across calendar and transaction time sampling.

We find that: (a) there is a positive correlation between the number of orders, of any size, and volatility; (b) the price change in each order size category increases as order size increases; (c) number and proportion of orders are uncorrelated with price change per se; and (d) volatility appears negatively correlated with the proportion of small orders, uncorrelated with the proportion of medium‐sized orders, and positively correlated with the proportion of large orders.