Faculty of Economics and Business Administration Publications Database

Liquidity Dynamics in an Electronic Open Limit Order Book: an Event Study Approach

Schweikert, Uwe
Theissen, Eric
Volume: 21
Number: 1
Pages: 52 - 78
Month: January
ISSN-Print: 1354-7798
Link External Source: Online Version
Year: 2015
Keywords: Liquidity; Limit order book; Resiliency

We analyse the dynamics of liquidity in an electronic limit order book using the Exchange Liquidity Measure (XLM), a measure of the cost of a roundtrip trade of given size V. We use intraday event study methodology to analyse how liquidity shocks - large transactions and Bloomberg ticker news - affect the XLM. We find that resiliency after large transactions is high, i.e., liquidity quickly reverts to ‘normal’ levels. Large trades are ‘timed’; they take place at times when liquidity is unusually high. Bloomberg ticker news items do not have a discernible effect on liquidity.