Resiliency: cross-venue dynamics with Hawkes processes
- Market fragmentation and technological advances increasing the speed of trading altered the functioning and stability of global equity limit order markets. Taking market resiliency as an indicator of market quality, we investigate how resilient are trading venues in a high-frequency environment with cross-venue fragmented order flow. Employing a Hawkes process methodology on high-frequency data for FTSE 100 stocks on LSE, a traditional exchange, and on Chi-X, an alternative venue, we find that when liquidity becomes scarce Chi-X is a less resilient venue than LSE with variations existing across stocks and time. In comparison with LSE, Chi-X has more, longer, and severer liquidity shocks. Whereas the vast majority of liquidity droughts on both venues disappear within less than one minute, the recovery is not lasting, as liquidity shocks spiral over the time dimension. Over half of the shocks on both venues are caused by spiralling. Liquidity shocks tend to spiral more on Chi-X than on LSE for large stocks suggesting that the liquidity supply on Chi-X is thinner than on LSE. Finally, a significant amount of liquidity shocks spill over cross-venue providing supporting evidence for the competition for order flow between LSE and Chi-X.
Author: | Loriana PelizzonORCiDGND, Satchit Sagade, Katia Vozian |
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URN: | urn:nbn:de:hebis:30:3-552274 |
DOI: | https://doi.org/10.2139/ssrn.3711976 |
Parent Title (English): | SAFE working paper series ; No. 291 |
Series (Serial Number): | SAFE working paper (291) |
Publisher: | SAFE |
Place of publication: | Frankfurt am Main |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2020 |
Year of first Publication: | 2020 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2020/10/20 |
Tag: | Hawkes processes; competition; fragmentation; high-frequency data; liquidity; resiliency |
Issue: | 16 September 2020 |
Page Number: | 63 |
Note: | First version: May 15th, 2019 ; This version: September 16th, 2020 |
HeBIS-PPN: | 47142675X |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |