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Bid- and ask-side liquidity in the NYSE limit order book

Tolga Cenesizoglu and Gunnar Grass

Journal of Financial Markets, 2018, vol. 38, issue C, 14-38

Abstract: We disentangle bid- and ask-side liquidity using 11 years of comprehensive New York Stock Exchange limit order book data to document several empirical facts improving our understanding of the determinants, commonality, and pricing of liquidity. First, the ask- but not bid-side liquidity of financial stocks deteriorates during the 2008 short-selling ban. Second, ask- (bid-)side liquidity increases (decreases) in lagged short- and long-term returns. Third, liquidity commonality increases during the financial crisis, more so on the bid- than on the ask-side. Finally, ask- but not bid-side illiquidity predicts daily returns, while both forecast monthly returns.

Keywords: Market liquidity; Limit order book; Financial crisis; Short selling ban; Market microstructure; Asset pricing (search for similar items in EconPapers)
JEL-codes: G01 G12 G14 G18 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:finmar:v:38:y:2018:i:c:p:14-38