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Liquidity Dynamics in an Electronic Open Limit Order Book: an Event Study Approach
Author(s) -
Gomber Peter,
Schweickert Uwe,
Theissen Erik
Publication year - 2015
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2013.12006.x
Subject(s) - market liquidity , order (exchange) , limit (mathematics) , liquidity risk , event (particle physics) , measure (data warehouse) , business , monetary economics , liquidity crisis , liquidity trap , open market operation , economics , financial economics , advertising , computer science , finance , monetary policy , mathematics , data mining , mathematical analysis , physics , quantum mechanics
We analyse the dynamics of liquidity in an electronic limit order book using the Exchange Liquidity Measure (XLM), a measure of the cost of a roundtrip trade of given size V. We use intraday event study methodology to analyse how liquidity shocks ‐ large transactions and Bloomberg ticker news ‐ affect the XLM. We find that resiliency after large transactions is high, i.e., liquidity quickly reverts to ‘normal’ levels. Large trades are ‘timed’; they take place at times when liquidity is unusually high. Bloomberg ticker news items do not have a discernible effect on liquidity.