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Canceling Liquidity

Author

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  • Bonnie F. Van Ness
  • Robert A. Van Ness
  • Ethan D. Watson

Abstract

type="main" xml:lang="en"> We document an increase in limit order cancellation activity over the last decade and examine the impact of cancellation activity on market quality. Additionally, we test theoretical models pertaining to cancellation activity and study the differences in cancellation activity among the three largest exchanges. We find cancellation activity is detrimental to market quality. As predicted by theory, we find that cancellation activity increases with increases in the frequency with which traders contact the market and with increases in the uncertainty of the arrival rate of impatient traders. Finally, we document significant differences in cancellation activity between exchanges.

Suggested Citation

  • Bonnie F. Van Ness & Robert A. Van Ness & Ethan D. Watson, 2015. "Canceling Liquidity," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 38(1), pages 3-33, March.
    • Handle: RePEc:bla:jfnres:v:38:y:2015:i:1:p:3-33
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    Citations

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    Cited by:

    1. Cartea, Álvaro & Payne, Richard & Penalva, José & Tapia, Mikel, 2019. "Ultra-fast activity and intraday market quality," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 157-181.
    2. Nikolsko-Rzhevska, Olena & Nikolsko-Rzhevskyy, Alex & Black, Jeffrey R., 2020. "The life of U’s: Order revisions on NASDAQ," Journal of Banking & Finance, Elsevier, vol. 111(C).
    3. Karkowska, Renata & Palczewski, Andrzej, 2023. "Does high-frequency trading actually improve market liquidity? A comparative study for selected models and measures," Research in International Business and Finance, Elsevier, vol. 64(C).
    4. Jurich, Stephen N. & Mishra, Ajay Kumar & Parikh, Bhavik, 2020. "Indecisive algos: Do limit order revisions increase market load?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    5. Viktor Manahov, 2021. "High‐frequency trading order cancellations and market quality: Is stricter regulation the answer?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5385-5407, October.
    6. Olgun, Onur & Ekinci, Cumhur & Arıkan, Ramazan, 2024. "The performance of selected high-frequency trading proxies: An application on Turkish index futures market," Finance Research Letters, Elsevier, vol. 65(C).
    7. Liu, Wei, 2021. "Can HFT profit in Chinese stock market?," Economics Letters, Elsevier, vol. 209(C).
    8. Zhou, Hao & Kalev, Petko S., 2019. "Algorithmic and high frequency trading in Asia-Pacific, now and the future," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 186-207.
    9. Chiu, Junmao & Chen, Chin-Ho, 2023. "Limit order revisions across investor sophistication," Journal of Empirical Finance, Elsevier, vol. 70(C), pages 74-90.
    10. Chu, Gang & Zhang, Yongjie & Zhang, Xiaotao, 2021. "An analysis of impact of cancellation activity on market quality: Evidence from China," Economic Modelling, Elsevier, vol. 102(C).

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