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Measuring and explaining the asymmetry of liquidity

Author

Listed:
  • Rajat Tayal

    (Indira Gandhi Institute of Development Research)

  • Susan Thomas

    (Indira Gandhi Institute of Development Research)

Abstract
This paper examines transactions costs in buying versus selling using a large database of snapshots of the limit order book. On the equity spot market, there is clear evidence of asymmetry in liquidity: transactions costs are lower for buy market orders when compared with sell market orders. In the identical setting, trading in single stock futures is also observed, and there is little evidence of asymmetry. This suggests that asymmetry in liquidity may be driven by short sales restrictions which are present on the spot market but not on the single stock futures market.

Suggested Citation

  • Rajat Tayal & Susan Thomas, 2012. "Measuring and explaining the asymmetry of liquidity," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-011, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2012-011
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2012-011.pdf
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    References listed on IDEAS

    as
    1. Hedvall, Kaj & Niemeyer, Jonas & Rosenqvist, Gunnar, 1997. "Do buyers and sellers behave similarly in a limit order book? A high-frequency data examination of the Finnish stock exchange," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 279-293, June.
    2. David Michayluk & Karyn Neuhauser, 2008. "Is Liquidity Symmetric? A Study of Newly Listed Internet and Technology Stocks," International Review of Finance, International Review of Finance Ltd., vol. 8(3‐4), pages 159-178, September.
    3. Keim, Donald B & Madhaven, Ananth, 1996. "The Upstairs Market for Large-Block Transactions: Analysis and Measurement of Price Effects," The Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 1-36.
    4. Kraus, Alan & Stoll, Hans R, 1972. "Price Impacts of Block Trading on the New York Stock Exchange," Journal of Finance, American Finance Association, vol. 27(3), pages 569-588, June.
    5. Potters, Marc & Bouchaud, Jean-Philippe, 2003. "More statistical properties of order books and price impact," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 133-140.
    6. Vasiliki Plerou & Parameswaran Gopikrishnan & Xavier Gabaix & H. Eugene Stanley, 2001. "Quantifying Stock Price Response to Demand Fluctuations," Papers cond-mat/0106657, arXiv.org.
    7. Huang, Roger D. & Ting, Christopher, 2008. "A functional approach to the price impact of stock trades and the implied true price," Journal of Empirical Finance, Elsevier, vol. 15(1), pages 1-16, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The costs in buying versus the costs in selling
      by Ajay Shah in Ajay Shah's blog on 2012-05-26 01:48:00
    2. The costs in buying versus the costs in selling
      by Ajay Shah in Citizen Economists on 2012-06-01 00:10:43

    Citations

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    Cited by:

    1. Omar Euch & Masaaki Fukasawa & Mathieu Rosenbaum, 2018. "The microstructural foundations of leverage effect and rough volatility," Finance and Stochastics, Springer, vol. 22(2), pages 241-280, April.
    2. Szymon Stereńczak, 2021. "Minimum tick size reduction and stock liquidity: lessons from the Warsaw Stock Exchange," Bank i Kredyt, Narodowy Bank Polski, vol. 52(6), pages 545-576.
    3. El Euch Omar & Fukasawa Masaaki & Rosenbaum Mathieu, 2016. "The microstructural foundations of leverage effect and rough volatility," Papers 1609.05177, arXiv.org.

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