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Distilling liquidity costs from limit order books

Author

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  • Amaya, Diego
  • Filbien, Jean-Yves
  • Okou, Cédric
  • Roch, Alexandre F.

Abstract

This paper proposes a method to compute ex-ante trading costs at the intraday level from limit order books. Using nearly 500 of the largest traded companies in the NYSE ArcaBook, we show that these costs have nontrivial intraday dynamics, are negatively related to volume and positively related to volatility. When ex-ante trading costs are incorporated into price impact specifications, the results show that this measure provides relevant information about price changes of the market at a high frequency level. Our evidence suggest that ex-ante trading costs constitute a new source of information for the study of intraday liquidity.

Suggested Citation

  • Amaya, Diego & Filbien, Jean-Yves & Okou, Cédric & Roch, Alexandre F., 2018. "Distilling liquidity costs from limit order books," Journal of Banking & Finance, Elsevier, vol. 94(C), pages 16-34.
    • Handle: RePEc:eee:jbfina:v:94:y:2018:i:c:p:16-34
    DOI: 10.1016/j.jbankfin.2018.06.009
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    2. Anagnostidis, Panagiotis & Fontaine, Patrice, 2020. "Liquidity commonality and high frequency trading: Evidence from the French stock market," International Review of Financial Analysis, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    Intraday liquidity; Limit order books; Price impact; Price formation;
    All these keywords.

    JEL classification:

    • 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

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