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Liquidity Commonality Beyond Best Prices

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Author Info
Alexander Kempf
Daniel Mayston
Abstract

Previous market microstructure research focuses on commonality in liquidity at the inside spread. However, liquidity at the inside spread only determines the systematic liquidity risk of small and medium trades. We study commonality in displayed liquidity beyond best prices, which determines the systematic liquidity risk of large trades. We show that it is much larger than commonality at the inside spread. The deeper we look into the order book, the higher is the level of commonality. In addition, it rises in the morning and when markets fall. 2008 The Southern Finance Association and the Southwestern Finance Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1475-6803.2008.00230.x
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Article provided by Southern Finance Association and Southwestern Finance Association in its journal Journal of Financial Research.

Volume (Year): 31 (2008)
Issue (Month): 1 ()
Pages: 25-40
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Handle: RePEc:bla:jfnres:v:31:y:2008:i:1:p:25-40

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  1. Björn Hagströmer & Richard G. Anderson & Jane M. Binner & Birger Nilsson, 2009. "Dynamics in systematic liquidity," Working Papers 2009-025, Federal Reserve Bank of St. Louis. [Downloadable!]
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