The Informational Content of Limit Order Distributions During Market Auctions

Market auctions serve as a reasonable way to fix highly consensual prices for market participants, acting as information aggregation mechanisms. This article presents a novel framework for extracting information about market participants from the distribution of limit orders posted during pre-opening market auctions. The dynamics of these limit order distributions are described through a continuous-time model that permits inferring whether agents (in aggregate) post their bets according to commonly available information or while discarding the fundamental data. The methodology presented here permits disentangling the information patterns that occur during the price discovery process in call auctions. Empirical evidence on listed companies exhibits a significant reduction of the noise during the auction