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Aggressive Orders and the Resiliency of a Limit Order Market

Author

Listed:
  • Hans Degryse
  • Frank De Jong
  • Maarten Van Ravenswaaij
  • Gunther Wuyts

Abstract

We 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.

Suggested Citation

  • Hans Degryse & Frank De Jong & Maarten Van Ravenswaaij & Gunther Wuyts, 2005. "Aggressive Orders and the Resiliency of a Limit Order Market," Review of Finance, European Finance Association, vol. 9(2), pages 201-242.
  • Handle: RePEc:oup:revfin:v:9:y:2005:i:2:p:201-242.
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    File URL: http://hdl.handle.net/10.1007/s10679-005-7590-6
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    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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