Zooming in on Liquidity

36 Pages Posted: 1 Jul 2004

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: February 2004

Abstract

In this paper we use the Exchange Liquidity Measure (XLM) to investigate into the time dimension of liquidity. The XLM(V) measures the cost of a roundtrip trade of size V. Besides a descriptive analysis we present the results of intraday event studies. Our objective is to measure how a liquidity shock affects the XLM measure, and how long it takes for the XLM measure to revert to a normal level. We analyze two sets of liquidity shocks, namely, large transactions and company-specific Bloomberg ticker news items. Applying the methodology to a sample of German stocks we find that resiliency after large transactions is high, i.e., liquidity quickly reverts to normal levels. We further document that large transactions are timed. The Bloomberg ticker news items do not have a discernible effect on liquidity.

Keywords: Liquidity, intraday event study, resiliency

JEL Classification: G10

Suggested Citation

Gomber, Peter and Schweickert, Uwe and Theissen, Erik, Zooming in on Liquidity (February 2004). EFA 2004 Maastricht Meetings Paper No. 1805. Available at SSRN: https://ssrn.com/abstract=559406 or http://dx.doi.org/10.2139/ssrn.559406

Peter Gomber

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 (Contact Author)

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

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