Volatility regimes and the provision of liquidity in order book markets

Helena Beltran, Alain Durré () and Pierre Giot

No 2005012, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We analyze whether the liquidity provision in a pure order book market during normal market conditions (low volatility regime) differs from what is observed when the market is under stress (high volatility regime). We show that the static relationship between liquidity and volatility is resilient to regime changes in volatility. Nevertheless, we do find that it is more costly to trade when volatility is large. A VAR analysis shows that the liquidity dynamics is similar in the low and high volatility regimes, although the drop in liquidity subsequent to volatility shocks is larger in the high volatility regime. Finally, the market is more resilient to volatility or liquidity shocks in periods of turmoils.

Keywords: order book; volatility; liquidity (search for similar items in EconPapers)
JEL-codes: C32 G10 (search for similar items in EconPapers)
Date: 2005-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Volatility regimes and the provision of liquidity in order book markets (2006)
Working Paper: Volatility regimes and the provision of liquidity in order book markets (2006)
Working Paper: Volatility regimes and the provision of liquidity in order book markets (2005)
Working Paper: Volatility regimes and the provision of liquidity in order book markets (2005)
Working Paper: Volatility regimes and the provisions of liquidity in order book markets (2004)
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