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Aggressive Orders and the Resiliency of a Limit Order Market

Author

Listed:
  • 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.

Abstract

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.

Suggested Citation

  • Degryse, H.A. & de Jong, F.C.J.M. & van Ravenswaaij, M. & Wuyts, G., 2002. "Aggressive Orders and the Resiliency of a Limit Order Market," Discussion Paper 2002-80, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:8e62b849-399d-469e-91c6-4f91d821f827
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    Keywords

    stock markets; share prices; liquidity;

    JEL classification:

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

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