Cancelling Liquidity

46 Pages Posted: 8 Jun 2013 Last revised: 13 Aug 2014

See all articles by Bonnie F. Van Ness

Bonnie F. Van Ness

University of Mississippi - Department of Finance

Robert A. Van Ness

University of Mississippi - Department of Finance

Ethan Watson

University of North Carolina (UNC) at Wilmington

Date Written: August 12, 2014

Abstract

We document a two-fold increase in limit order cancellation activity over the last decade, and study the determinants of cancellations and the change in cancellation activity through time. We also examine the impact of order cancellation on market quality. We use an instrumental variable approach and estimate a simultaneous equations model to overcome simultaneity in the trading process. We find significant differences in cancellation activity in the post Reg NMS environment, and differences in cancellation activity between exchanges. However, we fail to find evidence that the increase in cancellations is detrimental to market quality, despite concerns from regulators and traders.

Keywords: Cancelled Orders, Cancellations, Limit Orders

JEL Classification: G12, G14

Suggested Citation

Van Ness, Bonnie F. and Van Ness, Robert A. and Watson, Ethan, Cancelling Liquidity (August 12, 2014). Available at SSRN: https://ssrn.com/abstract=2275539 or http://dx.doi.org/10.2139/ssrn.2275539

Bonnie F. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States
662-915-6749 (Phone)
662-915-7968 (Fax)

Robert A. Van Ness (Contact Author)

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

Ethan Watson

University of North Carolina (UNC) at Wilmington ( email )

601 South College Road
Wilmington, NC 28403
United States

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