Abstract - Market Reselience
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 deviations from pre-specified levels. We illustrate the explanatory power of a survival regression framework for the duration of intra-day liquidity `droughts'. We explain how such a model can be incorporated into an order execution framework, how to estimate total execution time and we show how one can generate estimates of extreme periods of illiquidity. Finally, we introduce a method to summarise exceedance duration information across different thresholds, which enables comparison of liquidity resilience across assets as well as across policy options, for different market conditions.
London School of Economics and Political Science
29. Apr. 2014