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Measuring and explaining the asymmetry of liquidity

Rajat Tayal () and Susan Thomas ()
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Rajat Tayal: Indira Gandhi Institute of Development Research

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: This paper examines transactions costs in buying versus selling using a large database of snapshots of the limit order book. On the equity spot market, there is clear evidence of asymmetry in liquidity: transactions costs are lower for buy market orders when compared with sell market orders. In the identical setting, trading in single stock futures is also observed, and there is little evidence of asymmetry. This suggests that asymmetry in liquidity may be driven by short sales restrictions which are present on the spot market but not on the single stock futures market.

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Date: 2012-04
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