Waiting costs and limit order book liquidity: Evidence from the ex-dividend deadline in Australia

Andrew Ainsworth and Adrian Lee (adrian.lee@deakin.edu.au)

Journal of Financial Markets, 2014, vol. 20, issue C, 101-128

Abstract: In theoretical models of limit order books populated with liquidity traders there is a link between order aggressiveness, spreads, and the cost of waiting for execution. We directly test these models using an experimental setting where waiting time is important for traders, namely the ex-dividend day. Consistent with these models, we find that order placement is more aggressive before stocks begin trading ex-dividend. Stocks with higher expected costs of delaying execution experience larger declines in order aggressiveness from the cum-day to the ex-day. Waiting costs also impact effective bid-ask spreads, which fall on the cum-day before rising on the ex-day.

Keywords: Waiting costs; Order aggressiveness; Liquidity; Bid-ask spread; Ex-dividend day (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:20:y:2014:i:c:p:101-128

DOI: 10.1016/j.finmar.2014.04.001

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