Котова Бэлла Витальевна
A Short-Term Response of Order-Driven Market Following a Large Liquidity Shock
In this research we use the limit order book of the Moscow Stock Exchange to analyze the effects of liquidity shock on spread, which is the most common measure of liquidity, as well as on the return of both ask and bid prices. We model the liquidity shock by creating a set of dummies for most aggressive buy and sell orders that appear in the limit order book. We use a regression analysis to show that the responses of ask and bid returns are asymmetric and react in different ways once the most aggressive orders enter the market. Our results also suggest that the trade size does affect the spread, however these effects may be different for aggressive and nonaggressive stocks.