Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/57745
Authors: 
Kempf, Alexander
Mayston, Daniel
Year of Publication: 
2006
Series/Report no.: 
CFR Working Paper 06-04
Abstract: 
This paper investigates the commonality of liquidity in an open limit order book market. We find that commonality in liquidity becomes stronger the deeper we look into the limit order book. While commonality is only about 2% at the best prices, it increases up to about 20% inside the limit order book. Furthermore, we find strong time variation in commonality both on an intradaily basis and with the movement of the market return. Our study thus suggests that previous estimates of commonality do not hold for liquidity beyond best prices. Therefore, systematic liquidity risk in a limit order book market is much higher than previous evidence implies.
Subjects: 
Order-Driven Markets
Liquidity Commonality
JEL: 
G10
G14
Document Type: 
Working Paper

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