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Liquidity determination in an order-driven market
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Daníelsson, Jón and Payne, Richard (2012) Liquidity determination in an order-driven market. The European Journal of Finance, Vol. 18 (No. 9). pp. 799-821. doi:10.1080/1351847X.2011.601654 ISSN 1351-847X.
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Official URL: http://dx.doi.org/10.1080/1351847X.2011.601654
Abstract
We exploit full order level information from an electronic FX broking system to provide a comprehensive account of the determination of its liquidity. We not only look at bid-ask spreads and trading volumes, but also study the determination of order entry rates and depth measures derived from the entire limit order book. We find strong predictability in the arrival of liquidity supply/demand events. Further, in times of low (high) liquidity, liquidity supply (demand) events are more common. In times of high trading activity and volatility, the ratio of limit to market order arrivals is high but order book spreads and depth deteriorate. These results are consistent with market order traders having better information than limit order traders.
Item Type: | Journal Article | ||||
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Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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Journal or Publication Title: | The European Journal of Finance | ||||
Publisher: | Taylor & Francis | ||||
ISSN: | 1351-847X | ||||
Official Date: | 2012 | ||||
Dates: |
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Volume: | Vol. 18 | ||||
Number: | No. 9 | ||||
Page Range: | pp. 799-821 | ||||
DOI: | 10.1080/1351847X.2011.601654 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
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