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How does liquidity react to stress periods in a limit order market?

Author

Listed:
  • Helena Beltran

    (Université catholique de Louvain, CORE)

  • Alain Durré

    (Catholic University of Lille, Institut d'Économie Scientifique et de Gestion
    National Bank of Belgium, Research Department)

  • Pierre Giot

    (University of Namur
    CORE, Université catholique de Louvain)

Abstract

This paper looks at the interplay of volatility and liquidity on the Euronext trading platform during the December 2, 2002 to April 30, 2003 time period. Using transaction and order book data for some large- and mid-cap Brussels-traded stocks on Euronext, we study the ex-ante liquidity vs volatility and ex-post liquidity vs volatility relationships to ascertain if the high volatility led to decreases in liquidity and large trading costs. We show that the provision of liquidity remains adequate when volatility increases, although we do find that it is more costly to trade and that the market dynamics is somewhat affected when volatility is high.

Suggested Citation

  • Helena Beltran & Alain Durré & Pierre Giot, 2004. "How does liquidity react to stress periods in a limit order market?," Working Paper Research 49, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:200405-5
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Héléna Beltran-Lopez & Pierre Giot & Joachim Grammig, 2009. "Commonalities in the order book," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 23(3), pages 209-242, September.
    2. Philipp Weber & Bernd Rosenow, 2006. "Large stock price changes: volume or liquidity?," Quantitative Finance, Taylor & Francis Journals, vol. 6(1), pages 7-14.
    3. Ben Omrane, Walid & Tao, Yusi & Welch, Robert, 2017. "Scheduled macro-news effects on a Euro/US dollar limit order book around the 2008 financial crisis," Research in International Business and Finance, Elsevier, vol. 42(C), pages 9-30.
    4. Geert Langenus, 2006. "Fiscal sustainability indicators and policy design in the face of ageing," Working Paper Research 102, National Bank of Belgium.

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    More about this item

    Keywords

    order book; volatility; liquidity;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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