THE KEY ROLE OF LIQUIDITY FLUCTUATIONS IN DETERMINING LARGE PRICE CHANGES

2005 ◽  
Vol 05 (02) ◽  
pp. L209-L216 ◽  
Author(s):  
FABRIZIO LILLO ◽  
J. DOYNE FARMER
Keyword(s):  
Long Memory ◽  
Stock Exchange ◽  
Limit Order Book ◽  
Order Book ◽  
Financial Assets ◽  
Fat Tails ◽  
Limit Order ◽  
Price Changes ◽  
Long Memory Processes

Recent empirical analyses have shown that liquidity fluctuations are important for understanding large price changes of financial assets. These liquidity fluctuations are quantified by gaps in the order book, corresponding to blocks of adjacent price levels containing no quotes. Here we study the statistical properties of the state of the limit order book for 16 stocks traded at the London Stock Exchange (LSE). We show that the time series of the first three gaps are characterized by fat tails in the probability distribution and are described by long memory processes.

Over-the-Counter Markets

Dark Markets ◽  
2012 ◽  
Author(s):  
Darrell Duffie
Keyword(s):  
Limit Order Book ◽  
Institutional Setting ◽  
Order Book ◽  
Limit Order ◽  
Over The Counter ◽  
Limited Knowledge ◽  
Trading Mechanism

This chapter introduces the institutional setting of over-the-counter (OTC) markets and raises some of the key conceptual issues associated with market opaqueness. An OTC market does not use a centralized trading mechanism, such as an auction, specialist, or limit-order book, to aggregate bids and offers and to allocate trades. Instead, buyers and sellers negotiate terms privately, often in ignorance of the prices currently available from other potential counterparties and with limited knowledge of trades recently negotiated elsewhere in the market. OTC markets are thus said to be relatively opaque; investors are somewhat in the dark about the most attractive available terms and about whom to contact for attractive terms. Prices and allocations in OTC markets are, to varying extents, influenced by opaqueness and by the role of intermediating brokers and dealers.

GENERAL SEMI-MARKOV MODEL FOR LIMIT ORDER BOOKS

2017 ◽  
Vol 20 (03) ◽  
pp. 1750019 ◽  
Author(s):  
ANATOLIY SWISHCHUK ◽  
TYLER HOFMEISTER ◽  
KATHARINA CERA ◽  
JULIA SCHMIDT
Keyword(s):  
Markov Model ◽  
Arbitrary Number ◽  
Limit Order Book ◽  
Numerical Results ◽  
Order Book ◽  
Limit Order ◽  
Price Changes ◽  
Diffusion Limits ◽  
Order Books ◽  
Limit Order Books

The paper considers a general semi-Markov model for limit order books with two states that incorporates price changes that are not fixed to one tick. Furthermore, we introduce an even more general case of the semi-Markov model for limit order books that incorporates an arbitrary number of states for the price changes. For both cases, the justifications, diffusion limits, implementations and numerical results are presented for different limit order book data: Apple, Amazon, Google, Microsoft, Intel on 21 June 2012 and Cisco, Facebook, Intel, Liberty Global, Liberty Interactive, Microsoft, Vodafone from 3 November 2014 to 7 November 2014.

scholarly journals Price Discovery in the U.S. Treasury Cash Market: On Principal Trading Firms and Dealers

2020 ◽  
Vol 2020 (095) ◽  
pp. 1-36
Author(s):  
James Collin Harkrader ◽  
◽  
Michael Puglia ◽  
Keyword(s):  
Theoretical Models ◽  
Limit Order Book ◽  
Price Impact ◽  
Market Liquidity ◽  
Order Book ◽  
Limit Order ◽  
Limit Orders ◽  
Cash Transaction ◽  
Informational Advantage

We explore the following question: does the trading activity of registered dealers on Treasury interdealer broker (IDB) platforms differ from that of principal trading firms (PTF), and if so, how and to what effect on market liquidity? To do so, we use a novel dataset that combines Treasury cash transaction reports from FINRA’s Trade Reporting and Compliance Engine (TRACE) and publicly available limit order book data from BrokerTec. We find that trades conducted in a limit order book setting have high permanent price impact when a PTF is the passive party, playing the role of liquidity provider. Conversely, we find that dealer trades have higher price impact when the dealer is the aggressive party, playing the role of liquidity taker. Trades in which multiple firms (whether dealers or PTFs) participate on one or both sides, however, have relatively low price impact. We interpret these results in light of theoretical models suggesting that traders with only a “small” informational advantage prefer to use (passive) limit orders, while traders with a comparatively large informational advantage prefer to use (aggressive) market orders. We also analyze the events that occurred in Treasury markets in March 2020, during the onset of the COVID-19 pandemic.

Public Information Arrivals, Limit Order Book, and Stock Price Changes

2011 ◽  
Author(s):  
Huong Giang (Lily) Nguyen ◽  
Fariborz Moshirian ◽  
Peter K. Pham
Keyword(s):  
Stock Price ◽  
Public Information ◽  
Limit Order Book ◽  
Order Book ◽  
Limit Order ◽  
Price Changes

scholarly journals Studies of the limit order book around large price changes

2009 ◽  
Vol 71 (4) ◽  
pp. 499-510 ◽  
Author(s):  
B. Tóth ◽  
J. Kertész ◽  
J. D. Farmer
Keyword(s):  
Limit Order Book ◽  
Order Book ◽  
Limit Order ◽  
Price Changes

The information content of the thinner order book following tick size reduction

2014 ◽  
Vol 40 (3) ◽  
pp. 218-233
Author(s):  
Cheng-Yi Chien ◽  
Tzu-Hsiang Liao ◽  
Hsiu-Chuan Lee
Keyword(s):  
Information Content ◽  
Stock Exchange ◽  
Limit Order Book ◽  
Order Book ◽  
Tick Size ◽  
Limit Order ◽  
Content Type ◽  
Taiwan Stock Exchange ◽  
Using Data ◽  
The Impact

Purpose – This paper aims to examine the impact of a reduction in tick size on the information content of the order book by using data from the Taiwan Stock Exchange (TWSE). Design/methodology/approach – To estimate the information content of the order book, the modified information share proposed by Hasbrouck and extended by Lien and Shrestha is used in this paper. Findings – The empirical results show that the limit order book is informative. Furthermore, the results indicate that a reduction in tick size will decrease the information content of the order book and the decrease in the information content of the order book is positively related to the thinner order book. Originality/value – This paper suggests that, in order to enhance the information content of the order book, the TWSE should disclose the full limit order book.

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