Download This PaperWaiting 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
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: Suggested Citation
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