Systematic Liquidity in the Xetra Order Book

  • Emanuel Albin Kopp (Contributor)
  • Michael Hütl (Contributor)
  • Loistl, O. (Contributor)
  • Johannes Prix (Contributor)

Activity: Talk or presentationScience to science

Description

The latest developments in the literature on market-wide liquidity are the investigation
of order-driven market structures, the application of higher data frequencies, and
there is also a shift towards a demand/supply perspective of liquidity. But most existing
studies concentrate exclusively on liquidity around the spread, which represents only a
small area of the liquidity provided by limit orders in the order book. We apply liquidity
measures that capture different non-overlapping tradability aspects of liquidity in the entire
limit order book. Since conventional PCA methods can be strongly affected by the presence
of outliers in the sample, we rely on a robust principal component analysis method
based on the Projection-Pursuit principle (Huber (1985)) to estimate the systematic liquidity
components. Moreover, a PCA methodology allows no economic interpretation of
the systematic factors. Therefore, a a multi-stage PCA and regression approach is proposed
that allows a more detailed investigation of cross-sectional liquidity determinants and
their interactions during the trading session. Additionally, we apply several other trading-related measures that
allow to capture information from the (entire) limit order book, and study the relation
of their market-wide factors to systematic factors in liquidity. This is the first empirical
study on non-idiosyncratic liquidity components that investigates different time periods
during the trading session based on complete tick-by-tick order book data from the Xetra
trading system.
Period6 Jul 20089 Jul 2008
Event titleAsian-FA Annual Conference
Event typeUnknown
Degree of RecognitionInternational