Systematic Liquidity in the Xetra Order Book: A Multi-Stage Approach

  • 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. Butmost 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 PCAmethodology allows no economic interpretation of
    the systematic factors. Thereforewe propose amulti-stage PCAand regression approach
    that allows a more detailed investigation of cross-sectional liquidity determinants and
    their interactions. 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.
    Period25 Jun 200828 Jun 2008
    Event titleEFMA 2008 Annual Meeting, European Financial Management Association (EFMA)
    Event typeUnknown
    Degree of RecognitionInternational