Aggressive Orders and the Resiliency of a Limit Order Market
AbstractWe analyze the resiliency of a pure limit order market by investigating the limit order book (bid and ask prices, spreads, depth and duration), order flow and transaction prices in a window of best limit updates and transactions around aggressive orders (orders that move prices). We find strong persistence in the submission of aggressive orders. Aggressive orders take place when spreads and depths are relatively low, and they induce bid and ask prices to be persistently different after the shock. Depth and spread remain also higher than just before the order, but do return to their initial level within 20 best limit updates after the shock. Relative to the sample average, depths stay around their mean before and after aggressive orders, whereas spreads return to their mean after about twenty best limit updates. The initial price impact of the aggressive order is partly reversed in the subsequent transactions. However, the aggressive order produces a long-term effect as prices show a tendency to return slowly to the price of the aggressive order. Copyright Springer 2005
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Bibliographic InfoArticle provided by Springer in its journal Review of Finance.
Volume (Year): 9 (2005)
Issue (Month): 2 (06)
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Web page: http://springerlink.metapress.com/link.asp?id=111870
Other versions of this item:
- Degryse, H.A. & Jong, F.C.J.M. de & Ravenswaaij, M. van & Wuyts, G., 2002. "Aggressive Orders and the Resiliency of a Limit Order Market," Discussion Paper 2002-80, Tilburg University, Center for Economic Research.
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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