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Commonality in ask-side vs. bid-side liquidity

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  • Sensoy, Ahmet

Abstract

We decompose the cost of trading into buy-side and sell-side using the limit order book. By using various position sizes to trade, we look for commonality in liquidity on different sides and also at the different levels of the order book. We find that bid-side liquidity has a higher commonality than ask-side liquidity for small position sizes to trade. On the other hand, ask-side commonality becomes stronger once position size exceeds a certain level. Empirical evidence suggests that this switching pattern may be due to the investors’ over-reaction to a positive and under-reaction to a negative market trend.

Suggested Citation

  • Sensoy, Ahmet, 2019. "Commonality in ask-side vs. bid-side liquidity," Finance Research Letters, Elsevier, vol. 28(C), pages 198-207.
    • Handle: RePEc:eee:finlet:v:28:y:2019:i:c:p:198-207
    DOI: 10.1016/j.frl.2018.04.020
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    Cited by:

    1. Sensoy, Ahmet & Uzun, Sevcan & Lucey, Brian M., 2021. "Commonality in FX liquidity: High-frequency evidence," Finance Research Letters, Elsevier, vol. 39(C).
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    3. Abhinava Tripathi & Vipul & Alok Dixit, 2020. "Liquidity commonality beyond best prices: Indian evidence," Journal of Asset Management, Palgrave Macmillan, vol. 21(4), pages 355-373, July.
    4. Richter, Thomas Julian, 2022. "Liquidity commonality in sovereign bond markets," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 501-518.

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    More about this item

    Keywords

    Market microstructure; Commonality in liquidity; Order book; Ask-side liquidity; Bid-side liquidity;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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