Waiting Costs and Limit Order Book Liquidity: Evidence from the Ex-Dividend Deadline in Australia

53 Pages Posted: 17 Mar 2011 Last revised: 17 Mar 2014

See all articles by Andrew Ainsworth

Andrew Ainsworth

University of Wollongong - School of Accounting, Economics & Finance

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate)

Date Written: November 26, 2013

Abstract

Theoretical models of limit order books populated with liquidity traders suggest a link between order aggressiveness, spreads and the cost of waiting for order execution. We directly test these models using an experimental setting where waiting time is important for traders, namely the ex-dividend day. Consistent with theoretical predictions, we find that order placement is more aggressive before stocks begin trading ex-dividend. Stocks with higher expected costs of delaying execution experience larger declines in order aggressiveness from the cum-day to the ex-day. Waiting costs also impact effective bid-ask spreads, which fall on the cum-day before rising on the ex-day.

Keywords: order aggressiveness, liquidity, bid-ask spread, ex-dividend day

JEL Classification: G14

Suggested Citation

Ainsworth, Andrew and Lee, Adrian D., Waiting Costs and Limit Order Book Liquidity: Evidence from the Ex-Dividend Deadline in Australia (November 26, 2013). Available at SSRN: https://ssrn.com/abstract=1769404 or http://dx.doi.org/10.2139/ssrn.1769404

Andrew Ainsworth (Contact Author)

University of Wollongong - School of Accounting, Economics & Finance ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate) ( email )

70 Elgar Road
Melbourne, VIC 3125
Australia

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