The Role Of Time In Price Discovery

participants completing but not anyone can produce. This price often is renewed by the one which can afford much higher price. So the discipline eventually has been formed. The stock market has the same discipline, but the object has become the contract but not the commodity.As the autoimmunization of stock markets and information technology developed the database records about the trading and related elements have become available. it was named high frequency data. The availability of high frequency data in stock market has opened the possibility of intraday activity. After many years developed the number of listed stock has increased greatly. And as lots of big State-owned enterprises come back our Chinese stock markets. The trading volume has expanded greatly and the volatility of stock index become highly. As we know, the main function of stock market is providing the good chance for investor to trade immediately and efficiently at low cost. It means the price discovery has become more and more important.At present high frequency time series analysis has become more and more popular in finance econometrics. The purpose of this paper is to investigate the components of the bid-ask spread in a pure limit order book market taking into account the duration between consecutive trades. The literature on the components of the bid-ask spread is rich and the subject is theoretically and empirically settled from many aspects. In this paper we investigate the price effects of trading intensity. Extending on the Madhavan et al. (1997) model, we split the intensity effect into liquidity and information effects. We provide a measure of market quality that is the ratio of the covariance bias to the variance bias. Analyzing Mingsheng stock about one year of tick by tick data, we find that the bid-ask spread in a pure limit order book market contains a risk component associated with managing the time to trade, and this component accounts for roughly 19.4% of the implied bid-ask spread. The results emphasize the importance of managing time in limit order book markets.This research is an empirical contribution to the fast growing literature on high frequency data. The research is of interest to policy makers in terms of market design and supervision, to economics in terms of model building, and to market participants as it sheds some light on how information affects trader behavior and how to read the market.