51 Pages Posted: 11 May 2018
Date Written: April 27, 2018
We propose a method to capture the notion of resilience, the dynamic aspect of liquidity in the limit order book, through the Threshold Exceedance Duration (TED) metric that we introduce. This measures the duration of liquidity 'droughts.' We illustrate the explanatory power of a survival regression framework for the duration of ‘droughts' in terms of observable state variables reflecting the shape and evolution of the limit order book using Chi-X data. Finally, we introduce a method to summarise exceedance duration information across different thresholds, called Liquidity Resilience Profile, which enables the comparison and the ranking of liquidity resilience.
Keywords: Liquidity Measures, Resilience, Limit Order Book, Liquidity Provision, Optimal Trade Execution
JEL Classification: G14, G12, C41, C57, D44
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