Distilling Liquidity Costs from Limit Order Books

40 Pages Posted: 16 Sep 2015 Last revised: 24 Jun 2018

See all articles by Diego Amaya

Diego Amaya

Wilfrid Laurier University

Jean-Yves Filbien

University of Lille I

Cedric Okou

University of Quebec at Montreal (UQAM)

Alexandre F. Roch

University of Quebec at Montreal (UQAM) - Faculty of Management (ESG)

Date Written: June 19, 2018

Abstract

This paper proposes a method to compute ex-ante trading costs at the intraday level from limit order books. Using nearly 500 of the largest traded companies in the NYSE ArcaBook, we show that these costs have nontrivial intraday dynamics, are negatively related to volume and positively related to volatility. When ex-ante trading costs are incorporated into price impact speci fications, the results show that this measure provides relevant information about price changes of the market at a high frequency level. Our evidence suggest that ex-ante trading costs constitute a new source of information for the study of intraday liquidity.

Keywords: Intraday liquidity, limit order books, price impact, price formation

JEL Classification: G12, G14

Suggested Citation

Amaya, Diego and Filbien, Jean-Yves and Okou, Cedric and Roch, Alexandre F., Distilling Liquidity Costs from Limit Order Books (June 19, 2018). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2660226 or http://dx.doi.org/10.2139/ssrn.2660226

Diego Amaya (Contact Author)

Wilfrid Laurier University ( email )

Waterloo, Ontario N2L 3C5
Canada

Jean-Yves Filbien

University of Lille I ( email )

104, avenue du peuple Belge
Villeneuve d'Ascq Cedex, 59655
France

Cedric Okou

University of Quebec at Montreal (UQAM) ( email )

PB 8888 Station DownTown
Succursale Centre Ville
Montreal, Quebec H3C3P8
Canada
514-987-3000 Ext. 5521 (Phone)

Alexandre F. Roch

University of Quebec at Montreal (UQAM) - Faculty of Management (ESG) ( email )

Case postale 8888
Succursale Centre-ville
Montreal, Quebec H3C 3P8
Canada

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