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CORRELATED BEHAVIOR IN LIMIT ORDER CANCELLATIONS, COMOVEMENT IN ASSET RETURNS, AND COMMONALITY IN LIQUIDITY
Author(s) -
Egginton Jared,
Watson Ethan D.
Publication year - 2019
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12200
Subject(s) - market liquidity , limit (mathematics) , economics , order (exchange) , stock exchange , monetary economics , asset (computer security) , stock (firearms) , financial economics , econometrics , computer science , finance , mathematics , engineering , mechanical engineering , mathematical analysis , computer security
We examine whether there is common behavior in limit order cancellation activity, that is, commonality in cancellation activity, on U.S. exchanges. We then examine whether this commonality in cancellation activity is associated with increased levels of return comovement and commonality in liquidity. We document strong evidence of limit order traders exhibiting exchange, industry, marketwide, and stock‐level commonality with regard to cancellation activity, which is consistent with limit order traders exhibiting correlated trading behavior. We also find that this correlated behavior in cancellation activity is associated with increased levels of return comovement and commonality in liquidity.