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Liquidity Provision of Limit Order Trading in the Futures Market Under Bull and Bear Markets

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  • Min‐Hsien Chiang
  • Tsai‐Yin Lin
  • Chih‐Hsien Jerry Yu

Abstract

This study investigates how limit orders affect liquidity in a purely order‐driven futures market. Additionally, the possible asymmetric relationship between market depth and transitory volatility in bull and bear markets and the effect of institutional trading on liquidity provision behavior are examined as well. The empirical results demonstrate that subsequent market depth increases as transient volatility increases in bull markets. Market depth exhibits significantly positive relationship to subsequent transient volatility in bull markets. Additionally, although trading volume positively influences transient volatility in bull markets, no such relationship exists in bear markets. Liquidity provision decreases when institutional trading activity intensifies during bear markets. Thus, liquidity provision for limit orders differs between bull and bear markets.

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  • Min‐Hsien Chiang & Tsai‐Yin Lin & Chih‐Hsien Jerry Yu, 2009. "Liquidity Provision of Limit Order Trading in the Futures Market Under Bull and Bear Markets," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(7‐8), pages 1007-1038, September.
    • Handle: RePEc:bla:jbfnac:v:36:y:2009:i:7-8:p:1007-1038
    DOI: 10.1111/j.1468-5957.2009.02140.x
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    3. Alexandre Aidov & Olesya Lobanova, 2021. "Volatility and Depth in Commodity and FX Futures Markets," JRFM, MDPI, vol. 14(11), pages 1-16, November.

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