IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-00515903.html
   My bibliography  Save this paper

Weather and Time Series Determinants of Liquidity in a Limit Order Market

Author

Listed:
  • Ioanid Rosu

    (university of chicago - booth school of business - University of Chicago)

  • Juhani Linnainmaa

    (university of chicago - booth school of business - University of Chicago)

Abstract

When liquidity is measured by the bid-ask spread or price impact, markets with more trading activity are typically more liquid than markets with less trading activity. But showing a causal connection from trading activity to spreads is difficult because these variables are endogenous. In the case of Finland's fully electronic limit order market, we use deseasonalized sunshine as an instrument for trading activity, and find that indeed higher trading activity causes lower spreads in the time series. We introduce another instrument for spreads and show that causality runs the other way as well: lower bid-ask spreads invite more trading activity. By using the lagged CBOE Volatility Index as an instrument, we also find that an exogenous increase in intra-day volatility causes larger spreads.

Suggested Citation

  • Ioanid Rosu & Juhani Linnainmaa, 2009. "Weather and Time Series Determinants of Liquidity in a Limit Order Market," Working Papers hal-00515903, HAL.
    • Handle: RePEc:hal:wpaper:hal-00515903
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michael Frömmel & Frederick Van Gysegem, 2012. "Spread Components in the Hungarian Forint-Euro Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(3), pages 52-69, May.
    2. Nicola Secomandi & Sunder Kekre, 2014. "Optimal Energy Procurement in Spot and Forward Markets," Manufacturing & Service Operations Management, INFORMS, vol. 16(2), pages 270-282, May.
    3. Ban Zheng & Eric Moulines & Frédéric Abergel, 2013. "Price jump prediction in a limit order book," Post-Print hal-00684716, HAL.
    4. Carol Osler & Xuhang Wang, 2012. "The Microstructure of Currency Markets," Working Papers 49, Brandeis University, Department of Economics and International Business School.
    5. Mynbaev, Kairat, 2020. "Using full limit order book for price jump prediction," MPRA Paper 101684, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00515903. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.