Title: How spread changes affect the order book: Comparing the price responses of order deletions and placements to trades,
Abstract: We observe the effects of the three different events that cause spread
changes in the order book, namely trades, deletions and placement of limit
orders. By looking at the frequencies of the relative amounts of price changing
events, we discover that deletions of orders open the bid-ask spread of a stock
more often than trades do. We see that once the amount of spread changes due to
deletions exceeds the amount of the ones due to trades, other observables in
the order book change as well. We then look at how these spread changing events
affect the prices of stocks, by means of the price response. We not only see
that the self-response of stocks is positive for both spread changing trades
and deletions and negative for order placements, but also cross-response to
other stocks and therefore the market as a whole. In addition, the
self-response function of spread-changing trades is similar to that of all
trades. This leads to the conclusion that spread changing deletions and order
placements have a similar effect on the order book and stock prices over time
as trades.