Detecting Liquidity Traders

50 Pages Posted: 2 Mar 2002 Last revised: 14 Dec 2008

See all articles by Avner Kalay

Avner Kalay

Tel Aviv University - Faculty of Management; University of Utah - David Eccles School of Business

Avi Wohl

Tel Aviv University - Coller School of Management

Date Written: June 1, 2007

Abstract

We develop a measure (based on the relative slopes of the demand and supply schedules) quantifying the asymmetric presence of liquidity traders in the market: a steeper slope of the demand (supply) schedule indicates a concentration of liquidity traders on the demand (supply) side. Using the opening session of the Tel Aviv Stock Exchange we demonstrate the predictive power of our measure. Consistent with theory, we find that the concentration of liquidity traders on the demand (supply) side is negatively (positively) correlated with future returns. We find that liquidity traders are likely to arrive at the market together (commonality).

Keywords: liquidity traders, liquidity, transparency, return predictability, commonality of liquidity, contagion, elasticity, liquidity

JEL Classification: G12, G14

Suggested Citation

Kalay, Avner and Wohl, Avi, Detecting Liquidity Traders (June 1, 2007). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=301741

Avner Kalay

Tel Aviv University - Faculty of Management ( email )

P.O. Box 39010
Ramat Aviv, Tel Aviv, 69978
Israel
972 3 6406298 (Phone)
972 3 6406330 (Fax)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States
801-581-5457 (Phone)

Avi Wohl (Contact Author)

Tel Aviv University - Coller School of Management ( email )

P.O. Box 39010
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 6409051 (Phone)

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