scholarly journals Tick Size and Price Reversal after Order Imbalance

2021 ◽  
Vol 9 (2) ◽  
pp. 19
Author(s):  
Espen Sirnes ◽  
Minh Thi Hong Dinh
Keyword(s):  
Opposite Effect ◽  
Market Liquidity ◽  
Tick Size ◽  
Order Imbalance ◽  
Price Reversal

It is well known that intraday returns tend to reverse the following intraday period, conditional on excess buying pressure on the bid or ask side. This suggests that liquidity providers “overreact” to order imbalance (OIB) by initially altering quotes so much that a negative autocorrelation is seen in mid-price returns. We investigate under which circumstances this behavior is most common. Specifically, it seems the tick size augments “OIB-reversal”. However, if the tick size is binding for much of the trading day, it has the opposite effect of censoring such reversals. In addition, if market liquidity is high, the reversal becomes more frequent.

Short Selling and Price Pressures in the Korean Stock Market

2015 ◽  
Vol 23 (2) ◽  
pp. 265-287
Author(s):  
Yeongseop Rhee ◽  
Sang Buhm Hahn
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Stock Price ◽  
Short Selling ◽  
Market Liquidity ◽  
Dynamic Panel Model ◽  
Market Sentiment ◽  
Order Imbalance ◽  
Price Decline ◽  
Korean Stock Market

This paper examines short-selling activity focusing on its behavior during non-normal times of occasional excesses in the Korean stock market. Using the methodology explained by Brunnermeier and Pederson (2005) and Shkilko et al. (2009; 2012), we first examine whether short-selling is predatory on those event days of large price reversals. Overall there is little predatory abnormal short-selling in the pre-rebound phase and we can observe active contrarian short-selling in the post-rebound phase. When we compared aggressiveness between short-selling and non-short-selling using order imbalance variables, we found that non-short selling is much more aggressive than short selling in the Korean stock market. From the observation of market liquidity measured by quoted spreads, we could find that market liquidity is somewhat limited during price decline stages while it slightly improves during price reversal phases. Also, using dynamic panel model, we test the influences of those variables on stock price changes and disaggregate the compound effect of short-selling reflected in trading volume itself into differentiated ones not only through pure trading channel but also through other complicated channels such as market sentiment change. Main findings from the regression results are as follows : In the Korean stock market, short sellers seem to behave as a contrarian trader rather than a momentum trader; seller-initiated aggressive trading, whether it is by short-selling or non-short-selling, leads to negative order imbalance and price decline; market liquidity is limited by short-selling and further pressure on price decline is added in the pre-rebound stage; and stock prices are affected not only through pure selling (buying) channel but also through other channels in the Korean stock market.

Impact of Tick-Size Reduction on the Market Liquidity — Evidence from the Emerging Order-Driven Market

2008 ◽  
Vol 11 (04) ◽  
pp. 591-616 ◽  
Author(s):  
Tzung-Yuan Hsieh ◽  
Shaung-Shii Chuang ◽  
Ching-Chung Lin
Keyword(s):  
Stock Market ◽  
Empirical Studies ◽  
Market Liquidity ◽  
Size Reduction ◽  
Trading Costs ◽  
Tick Size ◽  
Binding Constraints ◽  
One Year ◽  
Developed Nations ◽  
Order Driven Market

Empirical studies on the influence of tick-size reduction towards market liquidity have focused almost exclusively on quote-driven markets in developed nations, and generally their findings are based on time periods of less than one year. This work investigates the influence of tick-size reduction and the relaxations of binding-constraint probability on market liquidity in the Taiwanese stock market, an emerging order-driven market, starting on March 1, 2005. The empirical results show that the spread, depth, market liquidity, and binding-constraint probability all decrease following the tick-size reduction, especially for low-priced stocks. These results can be attributed to relaxation of binding constraints. Additionally, stocks that are frequently traded, have larger market capitalization, or have restrictive binding constraints, experience considerable declines in spread, depth, and market liquidity following tick-size reduction. Trading activity plays an important role in explaining changes in spread, depth, market liquidity, and binding constraints. Thus, tick-size reduction in the Taiwanese Stock Market can increase market efficiency and reduce the investors' trading costs.

The Relation Between Market Liquidity and Anonymity in the Presence of Tick Size Constraints

2012 ◽  
Vol 34 (1) ◽  
pp. 56-73 ◽  
Author(s):  
Christine Brown ◽  
Astrophel Kim Choo ◽  
Sean Pinder
Keyword(s):  
Market Liquidity ◽  
Tick Size ◽  
Size Constraints

scholarly journals Commonality In Liquidity: Lessons From An Emerging Stock Market

2015 ◽  
Vol 31 (5) ◽  
pp. 1927 ◽  
Author(s):  
Kais Tissaoui ◽  
Zied Ftiti ◽  
Chaker Aloui
Keyword(s):  
Stock Market ◽  
Firm Size ◽  
Private Information ◽  
Trading Volume ◽  
Market Liquidity ◽  
Information Flows ◽  
Public And Private ◽  
Order Imbalance ◽  
The Impact ◽  
The Relationship

<p><em>This study investigates commonality in liquidity in Tunisia, an order-driven, emerging stock market. We analyze the impact of information flow on the relationship between market liquidity and liquidity of securities, in addition to firm size and industry determinants. The effect of liquidity commonality on the liquidity of securities depends on firm size. The effect of market-wide commonality on liquidity is found to be stronger than that of industry-wide commonality. Our results show that public and private information flows improve liquidity. Systematic trading volume dominates systematic order imbalance in explaining liquidity; however, this effect is lesser compared to that of market liquidity.</em></p>

scholarly journals Liquidity of the Chinese Agricultural Futures Market and Its Impact on Futures Price—Based on High-Frequency Data

2018 ◽  
Vol 10 (12) ◽  
pp. 4579
Author(s):  
Yuanyuan Xu ◽  
Chongguang Li
Keyword(s):  
Opposite Effect ◽  
Negative Relationship ◽  
Asset Returns ◽  
Informed Trading ◽  
Price Impact ◽  
Market Liquidity ◽  
Agricultural Commodity ◽  
Agricultural Futures ◽  
Liquidity Costs ◽  
The Impact

This study examines the price impact of intraday trading activity and daily market liquidity of Chinese agricultural futures by analyzing continuous intraday 15-min and daily trading datasets, respectively. Corn and soybean, the necessity of the nation and people’s survival in China, are taken as case studies. Our main findings are threefold. Firstly, there is evidence of the presence of informed trading through persistent effects of trade size for both purchases and sales. The magnitude of effects and the seasonality of informed trading vary among varieties, which support the importance of night trading for price smoothing. Secondly, the impact of liquidity costs on returns does not permanently persist. For example, there appears a significant Friday effect with a linear negative relationship in the soybean market, while an exact opposite effect can be found in the corn market for Monday. Thirdly, while the results show no effect of holding position on asset returns in the corn market, the market size of soybean futures exerts a positive Thursday effect, which is prior to the Friday effect of transaction cost. A better understanding of liquidity costs and liquidity pricing is of great significance to a sustainable development of the agricultural commodity market in China.

Order Imbalance, Liquidity, and Returns of the U.S. Treasury Market

2012 ◽  
Vol 15 (02) ◽  
pp. 1250010 ◽  
Author(s):  
Junbo Wang ◽  
Chunchi Wu ◽  
Eden S. H. Yu
Keyword(s):  
Price Discovery ◽  
Market Liquidity ◽  
Inventory Problem ◽  
Market Returns ◽  
Treasury Bills ◽  
Market Participants ◽  
Order Imbalance ◽  
Treasury Market ◽  
The U.S

Previous studies have documented the informational role of order imbalances in price discovery of the Treasury market. In this paper, we explore the liquidity dimension of order imbalances. Through our research, we find evidence which indicates that order imbalances affect Treasury market liquidity. More importantly, order imbalances have significant effects on Treasury market returns and volatility, consistent with the contention that order imbalances can cause an inventory problem of marketwide concern. Results suggest that a significant portion of the effect of order imbalances on price and quoted spread is associated with the inventory premium that compensates market participants for providing liquidity to uninformed traders. The effects of order imbalances on market liquidity, returns and volatility are stronger for two- and five-year notes and Treasury bills. Furthermore, there is commonality in order imbalances. Sensitivity of order imbalances individual bonds to marketwide order imbalances varies across securities.

Sidecar Performance: Evidence from the Korean Stock Market

2007 ◽  
Vol 15 (1) ◽  
pp. 1-40
Author(s):  
Jong Won Park ◽  
Yun Sung Eom ◽  
Uk Chang
Keyword(s):  
Stock Market ◽  
Market Liquidity ◽  
Market Volatility ◽  
Securities Markets ◽  
Order Imbalance ◽  
Korean Stock Market ◽  
Return Dynamics ◽  
Price Discovery Process ◽  
Post Period

In the paper, the effects of sidecar on the Korean stock market are considered. Throughout the study, we could reach the following conclusions. Firstly, the analysis of return dynamics illustrates that there are no price reversals for all sample groups but price continuations after the event. Secondly, the analysis of volatility and liquidity shows that there are some differences in the effects of sidecar on market volatility and liquidity according to the sample periods‘ however, in the post period of widening of the sidecar trigger levels, the mechanism couldn’t play any role of stabilizing the market volatility and resolving the increased order imbalance around the event. From these results, we could infer that sidecar delays the normal price discovery process and undermine the market liquidity. Also, we suggest that the increased market efficiency of Korea stock market after the financial crisis in 1997, especially deregulation in securities markets, can be a good additional factor for explaining the diffrences in the role of sidecar between sample periods.

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