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Aggressive Orders and the Resiliency of a Limit Order Market

Listed author(s):
  • Degryse, H.A.

    (Tilburg University, Center For Economic Research)

  • de Jong, F.C.J.M.

    (Tilburg University, Center For Economic Research)

  • van Ravenswaaij, M.

    (Tilburg University, Center For Economic Research)

  • Wuyts, G.

We analyze the resiliency of a pure limit order market for large and small capitalization stocks as well as stocks with different tick sizes.We explore the issue of resiliency by investigating the order flow around aggressive orders that move prices.The impact of aggressive orders is gauged in three complementary ways.First, we look at the order flow before and after aggressive orders.We find strong persistence in the submission of aggressive orders.It takes about 50 subsequent orders before the order flow returns to its unconditional pattern.Second, we describe and estimate the effect of aggressive orders on prices.The estimated price impact is realized immediately, i.e. there are no lagged price effects.However, due to correlated order flow, prices do move both before and after the submission of aggressive orders.As an explanatory variable, both aggressiveness and order size of aggressive orders are important in explaining price effects.Both firm size and tick size are important in explaining the variation of the impact of order aggressiveness.Small firms exhibit a larger price impact.A larger tick size implies somewhat larger price effects.

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File URL: https://pure.uvt.nl/portal/files/543112/80.pdf
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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2002-80.

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Date of creation: 2002
Handle: RePEc:tiu:tiucen:8e62b849-399d-469e-91c6-4f91d821f827
Contact details of provider: Web page: http://center.uvt.nl

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  1. Thierry Foucault & Ohad Kadan & Eugene Kandel, 2005. "Limit Order Book as a Market for Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1171-1217.
  2. Glosten, Lawrence R. & Harris, Lawrence E., 1988. "Estimating the components of the bid/ask spread," Journal of Financial Economics, Elsevier, vol. 21(1), pages 123-142, May.
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  5. Bacidore, Jeffrey M., 1997. "The Impact of Decimalization on Market Quality: An Empirical Investigation of the Toronto Stock Exchange," Journal of Financial Intermediation, Elsevier, vol. 6(2), pages 92-120, April.
  6. Biais, Bruno & Hillion, Pierre & Spatt, Chester, 1995. " An Empirical Analysis of the Limit Order Book and the Order Flow in the Paris Bourse," Journal of Finance, American Finance Association, vol. 50(5), pages 1655-1689, December.
  7. McInish, Thomas H & Wood, Robert A, 1992. " An Analysis of Intraday Patterns in Bid/Ask Spreads for NYSE Stocks," Journal of Finance, American Finance Association, vol. 47(2), pages 753-764, June.
  8. Parlour, Christine A, 1998. "Price Dynamics in Limit Order Markets," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 789-816.
  9. Angel, James J, 1997. " Tick Size, Share Prices, and Stock Splits," Journal of Finance, American Finance Association, vol. 52(2), pages 655-681, June.
  10. Ahn, Hee-Joon & Cao, Charles Q. & Choe, Hyuk, 1998. "Decimalization and competition among stock markets: Evidence from the Toronto Stock Exchange cross-listed securities," Journal of Financial Markets, Elsevier, vol. 1(1), pages 51-87, April.
  11. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
  12. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
  13. Cordella, Tito & Foucault, Thierry, 1999. "Minimum Price Variations, Time Priority, and Quote Dynamics," Journal of Financial Intermediation, Elsevier, vol. 8(3), pages 141-173, July.
  14. Hasbrouck, Joel, 1995. " One Security, Many Markets: Determining the Contributions to Price Discovery," Journal of Finance, American Finance Association, vol. 50(4), pages 1175-1199, September.
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  16. Burton Hollifield & Robert Miller & Patrik Sandas & Joshua Slive, "undated". "Liquidity Supply and Demand: Empirical Evidence from the Vancouver Stock Exchange," GSIA Working Papers 1999-E19, Carnegie Mellon University, Tepper School of Business.
  17. Bhattacharya, Utpal & Spiegel, Matthew, 1998. "Anatomy of a Market Failure: NYSE Trading Suspensions (1974-1988)," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 216-226, April.
  18. Easley, David & O'Hara, Maureen, 1987. "Price, trade size, and information in securities markets," Journal of Financial Economics, Elsevier, vol. 19(1), pages 69-90, September.
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  20. Griffiths, Mark D. & Smith, Brian F. & Turnbull, D. Alasdair S. & White, Robert W., 1998. "The Role of Tick Size in Upstairs Trading and Downstairs Trading," Journal of Financial Intermediation, Elsevier, vol. 7(4), pages 393-417, October.
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  23. repec:adr:anecst:y:2000:i:60:p:03 is not listed on IDEAS
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