Liquidity Dynamics in an Electronic Open Limit Order Book: An Event Study Approach

27 Pages Posted: 29 Jan 2015

See all articles by Peter Gomber

Peter Gomber

Goethe University Frankfurt Faculty of Economics and Business Administration

Uwe Schweickert

Deutsche Börse AG

Erik Theissen

University of Mannheim - Finance Area

Date Written: January 2015

Abstract

We analyse the dynamics of liquidity in an electronic limit order book using the Exchange Liquidity Measure (XLM), a measure of the cost of a roundtrip trade of given size V. We use intraday event study methodology to analyse how liquidity shocks ‐ large transactions and Bloomberg ticker news ‐ affect the XLM. We find that resiliency after large transactions is high, i.e., liquidity quickly reverts to ‘normal’ levels. Large trades are ‘timed’; they take place at times when liquidity is unusually high. Bloomberg ticker news items do not have a discernible effect on liquidity.

Keywords: liquidity, limit order book, resiliency

Suggested Citation

Gomber, Peter and Schweickert, Uwe and Theissen, Erik, Liquidity Dynamics in an Electronic Open Limit Order Book: An Event Study Approach (January 2015). European Financial Management, Vol. 21, Issue 1, pp. 52-78, 2015. Available at SSRN: https://ssrn.com/abstract=2557137 or http://dx.doi.org/10.1111/j.1468-036X.2013.12006.x

Peter Gomber (Contact Author)

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.efinancelab.de/no_cache/team/?user_wiwipubs_pi2[showUid]=478

Uwe Schweickert

Deutsche Börse AG ( email )

Neue Börsenstr. 1
60485 Frankfurt/Main, 60485
Germany

Erik Theissen

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

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