THE KEY ROLE OF LIQUIDITY FLUCTUATIONS IN DETERMINING LARGE PRICE CHANGES
- 1 June 2005
- journal article
- Published by World Scientific Pub Co Pte Ltd in Fluctuation and Noise Letters
- Vol. 5 (2) , L209-L216
- https://doi.org/10.1142/s0219477505002574
Abstract
Recent empirical analyses have shown that liquidity fluctuations are important for understanding large price changes of financial assets. These liquidity fluctuations are quantified by gaps in the order book, corresponding to blocks of adjacent price levels containing no quotes. Here we study the statistical properties of the state of the limit order book for 16 stocks traded at the London Stock Exchange (LSE). We show that the time series of the first three gaps are characterized by fat tails in the probability distribution and are described by long memory processes.Keywords
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