Aggressive Orders and the Resiliency of a Limit Order Market

Posted: 1 Sep 2008

See all articles by Hans Degryse

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Frank De Jong

affiliation not provided to SSRN

Maarten Van Ravenswaaij

affiliation not provided to SSRN

Gunther Wuyts

KU Leuven - University of Leuven

Abstract

We analyze the resiliency of a pure limit order market by investigating the limit order book (bid and ask prices, spreads, depth and duration), order flow and transaction prices in a window of best limit updates and transactions around aggressive orders (orders that move prices). We find strong persistence in the submission of aggressive orders. Aggressive orders take place when spreads and depths are relatively low, and they induce bid and ask prices to be persistently different after the shock. Depth and spread remain also higher than just before the order, but do return to their initial level within 20 best limit updates after the shock. Relative to the sample average, depths stay around their mean before and after aggressive orders, whereas spreads return to their mean after about twenty best limit updates. The initial price impact of the aggressive order is partly reversed in the subsequent transactions. However, the aggressive order produces a long-term effect as prices show a tendency to return slowly to the price of the aggressive order.

Suggested Citation

Degryse, Hans and Jong, Frank De and Ravenswaaij, Maarten Van and Wuyts, Gunther, Aggressive Orders and the Resiliency of a Limit Order Market. Review of Finance, Vol. 9, Issue 2, pp. 201-242, 2005. Available at SSRN: https://ssrn.com/abstract=1260594 or http://dx.doi.org/10.1007/s10679-005-7590-6

Hans Degryse (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Frank De Jong

affiliation not provided to SSRN

No Address Available

Maarten Van Ravenswaaij

affiliation not provided to SSRN

No Address Available

Gunther Wuyts

KU Leuven - University of Leuven ( email )

KU Leuven - Faculty of Business and Economics
Naamsestraat 69
Leuven, Vlaams-Brabant 3000
Belgium
+3216326731 (Phone)

HOME PAGE: http://www.econ.kuleuven.be/gunther.wuyts

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