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Correlated Behavior In Limit Order Cancellations, Comovement In Asset Returns, And Commonality In Liquidity

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  • Jared Egginton
  • Ethan D. Watson

Abstract

We examine whether there is common behavior in limit order cancellation activity, that is, commonality in cancellation activity, on U.S. exchanges. We then examine whether this commonality in cancellation activity is associated with increased levels of return comovement and commonality in liquidity. We document strong evidence of limit order traders exhibiting exchange, industry, marketwide, and stock‐level commonality with regard to cancellation activity, which is consistent with limit order traders exhibiting correlated trading behavior. We also find that this correlated behavior in cancellation activity is associated with increased levels of return comovement and commonality in liquidity.

Suggested Citation

  • Jared Egginton & Ethan D. Watson, 2020. "Correlated Behavior In Limit Order Cancellations, Comovement In Asset Returns, And Commonality In Liquidity," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(1), pages 37-62, March.
    • Handle: RePEc:bla:jfnres:v:43:y:2020:i:1:p:37-62
    DOI: 10.1111/jfir.12200
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