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Resiliency: A dynamic view of liquidity

Alexander Kempf, Daniel Mayston, Monika Gehde-Trapp and Pradeep K. Yadav

No 15-04, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

Abstract: This paper investigates resiliency to provide a dynamic perspective on liquidity. We define resiliency as the rate of mean reversion in liquidity. Resiliency increases with the proportion of patient traders, decreases with order arrival rate, and increases with tick size; providing strong support for the Foucault, Kadan, and Kandel (2005) model. Resiliency is also greater when information-related risks are lower. Algorithmic trading is associated with higher resiliency, but less so for smaller stocks and in information-intensive periods. Our results for spread and depth resiliency are similar, and robust with respect to the order book depth at which liquidity is measured.

Keywords: Liquidity; Resiliency (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (19)

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