Both authors from the Department of Finance, Graduate School of Business Adminstration, New York University. For comments on an earlier draft, we are indebted to Yakov Amihud, Robert Cumby, Andy Lo, John Merrick, Robert Schwartz, our colleagues in the NYU Finance and Economics workshop, and the referees. The data used in this study were supplied by the American Stock Exchange. All errors are our own responsibility.
Order Arrival, Quote Behavior, and the Return-Generating Process
Article first published online: 30 APR 2012
1987 The American Finance Association
The Journal of Finance
Volume 42, Issue 4, pages 1035–1048, September 1987
How to Cite
HASBROUCK, J. and HO, T. S. Y. (1987), Order Arrival, Quote Behavior, and the Return-Generating Process. The Journal of Finance, 42: 1035–1048. doi: 10.1111/j.1540-6261.1987.tb03926.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This paper establishes three empirical results. We find positive autocorrelation in actual intra-day stock returns, in intra-day returns computed from quote midpoints, and in the arrival of buy and sell orders. We present a model of return generation that incorporates these features via lagged adjustment of the limit-order price and positive dependence in bid and ask transactions. The return model is observationally equivalent to an ARMA process, which is consistent with the observed return behavior.