Aggressive Orders and the Resiliency of a Limit Order Market* (2024)

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Volume 9 Issue 2 2005
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Hans Degryse

1

Department of Economics, Katholieke Universiteit Leuven

2

CentER, Tilburg

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Frank De Jong

3

Finance Group, University of Amsterdam

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Maarten Van Ravenswaaij

4

SNS Asset Management, ’s Hertogenbosch

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Gunther Wuyts

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Review of Finance, Volume 9, Issue 2, 2005, Pages 201–242, https://doi.org/10.1007/s10679-005-7590-6

Published:

01 January 2005

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Abstract

We analyze the resiliency of a pure limit order market by investigating the limit order book (bid and ask prices, spreads, depth and duration), order flow and transaction prices in a window of best limit updates and transactions around aggressive orders (orders that move prices). We find strong persistence in the submission of aggressive orders. Aggressive orders take place when spreads and depths are relatively low, and they induce bid and ask prices to be persistently different after the shock. Depth and spread remain also higher than just before the order, but do return to their initial level within 20 best limit updates after the shock. Relative to the sample average, depths stay around their mean before and after aggressive orders, whereas spreads return to their mean after about twenty best limit updates. The initial price impact of the aggressive order is partly reversed in the subsequent transactions. However, the aggressive order produces a long-term effect as prices show a tendency to return slowly to the price of the aggressive order.

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Household Finance Market Microstructure

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