Volatility regimes and the provisions of liquidity in order book markets

Beltran Helena, Alain Durré () and Pierre Giot

No 2005015, Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques

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 turnoils.

Keywords: order book; volatility; liquidity (search for similar items in EconPapers)
JEL-codes: C32 G10 (search for similar items in EconPapers)
Pages: 41
Date: 2004-12-01
New Economics Papers: this item is included in nep-fin
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Citations: View citations in EconPapers (1)

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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 provision of liquidity in order book markets (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvec:2005015

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