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Resiliency: A dynamic view of liquidity

Author

Listed:
  • Kempf, Alexander
  • Mayston, Daniel
  • Gehde-Trapp, Monika
  • Yadav, Pradeep K.

Abstract

This paper investigates resiliency to provide a dynamic perspective on liquidity. We define resiliency as the rate of mean reversion in liquidity. Resiliency increases with the proportion of patient traders, decreases with order arrival rate, and increases with tick size; providing strong support for the Foucault, Kadan, and Kandel (2005) model. Resiliency is also greater when information-related risks are lower. Algorithmic trading is associated with higher resiliency, but less so for smaller stocks and in information-intensive periods. Our results for spread and depth resiliency are similar, and robust with respect to the order book depth at which liquidity is measured.

Suggested Citation

  • Kempf, Alexander & Mayston, Daniel & Gehde-Trapp, Monika & Yadav, Pradeep K., 2015. "Resiliency: A dynamic view of liquidity," CFR Working Papers 15-04, University of Cologne, Centre for Financial Research (CFR).
    • Handle: RePEc:zbw:cfrwps:1504
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    References listed on IDEAS

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    2. Agarwal, Vikas & Arisoy, Y. Eser & Naik, Narayan Y., 2017. "Volatility of aggregate volatility and hedge fund returns," Journal of Financial Economics, Elsevier, vol. 125(3), pages 491-510.
    3. Agarwal, Vikas & Ma, Linlin, 2013. "Managerial multitasking in the mutual fund industry," CFR Working Papers 13-10, University of Cologne, Centre for Financial Research (CFR).
    4. Baule, Rainer & Korn, Olaf & Saßning, Sven, 2013. "Which beta is best? On the information content of option-implied betas," CFR Working Papers 13-11, University of Cologne, Centre for Financial Research (CFR).
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    6. Cici, Gjergji & Jaspersen, Stefan & Kempf, Alexander, 2015. "Speed of information diffusion within fund families," CFR Working Papers 15-02 [rev.], University of Cologne, Centre for Financial Research (CFR).
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    8. Cici, Gjergji & Gibson, Scott & Gunduz, Yalin & Merrick, John J., 2013. "Market transparency and the marking precision of bond mutual fund managers," CFR Working Papers 13-07, University of Cologne, Centre for Financial Research (CFR).
    9. Kamstra, Mark J. & Kramer, Lisa A. & Levi, Maurice D. & Wermers, Russ, 2017. "Seasonal Asset Allocation: Evidence from Mutual Fund Flows," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(1), pages 71-109, February.
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    Cited by:

    1. Sorhage, Christoph, 2015. "Outsourcing of mutual funds' non-core competencies," CFR Working Papers 14-04 [rev.2], University of Cologne, Centre for Financial Research (CFR).
    2. Agarwal, Vikas & Arisoy, Y. Eser & Naik, Narayan Y., 2017. "Volatility of aggregate volatility and hedge fund returns," Journal of Financial Economics, Elsevier, vol. 125(3), pages 491-510.
    3. Benjamin Clapham & Martin Haferkorn & Kai Zimmermann, 2020. "Does Speed Matter? The Role Of High‐Frequency Trading For Order Book Resiliency," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(4), pages 933-964, December.
    4. Black, Jeffrey R. & Stock, Duane & Yadav, Pradeep K., 2016. "The pricing of different dimensions of liquidity: Evidence from government guaranteed bonds," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 119-132.
    5. Gregor Helmut Schoenemann, 2022. "The man in the middle—liquidity provision under central clearing in the credit default swap market: A regression discontinuity approach," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(3), pages 446-471, March.
    6. Ramos, Henrique Pinto & Righi, Marcelo Brutti, 2020. "Liquidity, implied volatility and tail risk: A comparison of liquidity measures," International Review of Financial Analysis, Elsevier, vol. 69(C).
    7. O’Sullivan, Conall & Papavassiliou, Vassilios G. & Wafula, Ronald Wekesa & Boubaker, Sabri, 2024. "New insights into liquidity resiliency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 90(C).
    8. Pelizzon, Loriana & Sagade, Satchit & Vozian, Katia, 2020. "Resiliency: Cross-venue dynamics with Hawkes processes," SAFE Working Paper Series 291, Leibniz Institute for Financial Research SAFE.
    9. Agarwal, Vikas & Ma, Linlin & Mullally, Kevin, 2015. "Managerial multitasking in the mutual fund industry," CFR Working Papers 13-10 [rev.], University of Cologne, Centre for Financial Research (CFR).
    10. Weigerding, Michael, 2023. "Long-term liquidity effects of large-scale asset purchase programs: Evidence from the euro covered bond market," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 244-264.
    11. Dahm, Laura K. & Sorhage, Christoph, 2015. "Milk or wine: Mutual funds' (dis)economies of life," CFR Working Papers 15-05, University of Cologne, Centre for Financial Research (CFR).
    12. Cici, Gjergji & Kempf, Alexander & Sorhage, Christoph, 2015. "Do financial advisors provide tangible benefits for investors? Evidence from tax-motivated mutual fund flows," CFR Working Papers 12-09 [rev.5], University of Cologne, Centre for Financial Research (CFR).
    13. Gehde-Trapp, Monika & Gündüz, Yalin & Nasev, Julia, 2015. "The liquidity premium in CDS transaction prices: Do frictions matter?," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 184-205.
    14. Agarwal, Vikas & Green, Tracy Clifton & Ren, Honglin, 2017. "Alpha or beta in the eye of the beholder: What drives hedge fund flows?," CFR Working Papers 15-08, University of Cologne, Centre for Financial Research (CFR), revised 2017.
    15. Kim, Jinyong & Kim, Yongsik, 2019. "Transitory prices, resiliency, and the cross-section of stock returns," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 243-256.
    16. Cici, Gjergji & Jaspersen, Stefan & Kempf, Alexander, 2015. "Speed of information diffusion within fund families," CFR Working Papers 15-02 [rev.], University of Cologne, Centre for Financial Research (CFR).
    17. Ibikunle, Gbenga & Li, Youwei & Mare, Davide & Sun, Yuxin, 2021. "Dark matters: The effects of dark trading restrictions on liquidity and informational efficiency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    18. Agarwal, Vikas & Zhao, Haibei, 2015. "Interfund lending in mutual fund families: Role of internal capital markets," CFR Working Papers 15-09, University of Cologne, Centre for Financial Research (CFR).

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    More about this item

    Keywords

    Liquidity; Resiliency;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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