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Cross-Asset Market Order Flow, Liquidity, and Price Discovery

Robert Garrison (), Pankaj Jain () and Mark Paddrik
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Robert Garrison: Office of Financial Research
Pankaj Jain: University of Memphis, Office of Financial Research

No 19-04, Working Papers from Office of Financial Research, US Department of the Treasury

Abstract: Cross-asset market activity can be a channel through which illiquidity risks originating in one market can propagate to others. This paper examines the complex intra-day linkages between the U.S. equity securities market and the equity derivatives market using high-frequency data on S&P 500 index exchange-traded funds and E-mini futures contracts. The paper finds a positive, but short-lived, relationship between the two markets' order flow activities, which relates to the supply, demand, and withdrawal of liquidity between the two markets. The paper also finds that cross-asset market order flow is a key component of liquidity and price discovery, particularly during periods of market volatility.

Keywords: cross-market arbitrage; order flow; liquidity; market structure; automated markets (search for similar items in EconPapers)
Pages: 57 pages
Date: 2019-10-23
New Economics Papers: this item is included in nep-fmk and nep-mst
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