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

Peter Gomber, Uwe Schweickert and Erik Theissen

European Financial Management, 2015, vol. 21, issue 1, 52-78

Abstract: 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.

Date: 2015
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