Liquidity Provision of Limit Order Trading in the Futures Market Under Bull and Bear Markets |
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| Authors: | Min-Hsien Chiang Tsai-Yin Lin and Chih-Hsien Jerry Yu |
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| Institution: | Min-Hsien Chiang is at the Institute of International Business, National Cheng Kung University, Taiwan. Tsai-Yin Lin is at the Department of Finance, National Kaohsiung First University of Science and Technology, Taiwan. Chih-Hsien Jerry Yu is at the Merrick School of Business, University of Baltimore, US. They would like to thank, Andrew W. Stark (editor), and an anonymous referee for valuable comments and suggestions. All errors and omissions remain the authors' sole responsibility. |
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| Abstract: | Abstract: This study investigates how limit orders affect liquidity in a purely order-driven futures market. Additionally, the possible asymmetric relationship between market depth and transitory volatility in bull and bear markets and the effect of institutional trading on liquidity provision behavior are examined as well. The empirical results demonstrate that subsequent market depth increases as transient volatility increases in bull markets. Market depth exhibits significantly positive relationship to subsequent transient volatility in bull markets. Additionally, although trading volume positively influences transient volatility in bull markets, no such relationship exists in bear markets. Liquidity provision decreases when institutional trading activity intensifies during bear markets. Thus, liquidity provision for limit orders differs between bull and bear markets. |
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| Keywords: | market depth limit order bull and bear markets institutional trading liquidity |
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