Limit order book and commonality in liquidity

Kang, Wenjin, and Zhang, Huiping (2013) Limit order book and commonality in liquidity. Financial Review, 48 (1). pp. 97-122.

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We show that the liquidity provided by an individual stock's limit order book comoves significantly with the market aggregate limit order book liquidity. A closer look at the inside and outside liquidity provided by different parts of limit order book suggests that inside liquidity is mainly influenced by market volatility, while idiosyncratic volatility has a larger impact on outside liquidity. Hence, limit order book inside liquidity exhibits higher commonality than outside liquidity. We also show that the comovement between the stock-level and market aggregate limit order book liquidity measures is related to the commonality in the overall stock market liquidity.

Item ID: 42820
Item Type: Article (Research - C1)
ISSN: 1540-6288
Keywords: limit order book, commonality, liquidity
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Funders: National University of Singapore (NUS), Shanghai University of Finance & Economics
Date Deposited: 13 Sep 2016 04:20
FoR Codes: 14 ECONOMICS > 1402 Applied Economics > 140207 Financial Economics @ 100%
SEO Codes: 90 COMMERCIAL SERVICES AND TOURISM > 9001 Financial Services > 900102 Investment Services (excl. Superannuation) @ 100%
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