Aggressive Orders and the Resiliency of a Limit Order Market

H.A. Degryse, F.C.J.M. de Jong, M. van Ravenswaaij, G. Wuyts

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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.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages53
Volume2002-80
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper
Volume2002-80

Keywords

  • stock markets
  • share prices
  • liquidity

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