The lack of sufficient market depth particularly in many newly initiated futures markets results in relatively high hedging costs, and this inhibits the growth of futures contract volume. In this article the price path due to order imbalances is analyzed and a two-dimensional market depth measure is derived. Understanding the underlying structure of futures market depth provides the management of the futures exchange with a framework for improving their market depth and gives hedgers a better understanding of market depth risk. The managerial implications of our findings are demonstrated empirically using data from the Amsterdam Agricultural Futures Exchange.
Pennings, J. M. E., Kuiper, W. E., ter Hofstede, F., & Meulenberg, M. T. G. (1998). The price path due to order imbalances: evidence from the Amsterdam agricultural futures exchange. European financial management, 4(1), 47-64. https://doi.org/10.1111/1468-036X.00053