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Bid- and ask-side liquidity in the NYSE limit order book

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  • Cenesizoglu, Tolga
  • Grass, Gunnar

Abstract

We disentangle bid- and ask-side liquidity using 11 years of comprehensive New York Stock Exchange limit order book data to document several empirical facts improving our understanding of the determinants, commonality, and pricing of liquidity. First, the ask- but not bid-side liquidity of financial stocks deteriorates during the 2008 short-selling ban. Second, ask- (bid-)side liquidity increases (decreases) in lagged short- and long-term returns. Third, liquidity commonality increases during the financial crisis, more so on the bid- than on the ask-side. Finally, ask- but not bid-side illiquidity predicts daily returns, while both forecast monthly returns.

Suggested Citation

  • Cenesizoglu, Tolga & Grass, Gunnar, 2018. "Bid- and ask-side liquidity in the NYSE limit order book," Journal of Financial Markets, Elsevier, vol. 38(C), pages 14-38.
    • Handle: RePEc:eee:finmar:v:38:y:2018:i:c:p:14-38
    DOI: 10.1016/j.finmar.2017.10.002
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    5. Carlo Campajola & Fabrizio Lillo & Daniele Tantari, 2019. "Unveiling the relation between herding and liquidity with trader lead-lag networks," Papers 1909.10807, arXiv.org, revised Mar 2020.
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    More about this item

    Keywords

    Market liquidity; Limit order book; Financial crisis; Short selling ban; Market microstructure; Asset pricing;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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