Arbeitspapier
Estimating endogenous liquidity using transaction and order book information
We distinguish exogenous liquidity, which corresponds to the variability of bid-ask spreads for usual-sized transactions, from endogenous liquidity, which we interpret as the impact of liquidity on market prices when liquidating larger positions. Endogenous liquidity measures the risk that the realized price of a transaction may be different from the price before the transaction. We apply an endogenous liquidity-based model to order books and credit default swap (CDS) transactions in order to understand two different phenomena. An order book of equity prices has been utilized so as to reveal any 'not yet realized' endogenous liquidity effects, i.e. any effects that become real if a new order is executed. Our results indicate that measuring the impact of the endogenous liquidity on the valuation of the portfolio is quite realistic. Second, we apply our model to a set of CDS transactions in order to find a 'realized' endogenous liquidity component. We conclude that a realized systemic component is not present in realized CDS transactions, probably due to placing of iceberg orders, simply by slicing the large transactions into several small pieces to avoid liquidity constraints: Traders know perfectly where endogenous liquidity starts when they execute their transactions.
- ISBN
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978-3-86558-872-2
- Language
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Englisch
- Bibliographic citation
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Series: Bundesbank Discussion Paper ; No. 34/2012
- Classification
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Wirtschaft
Asset Pricing; Trading Volume; Bond Interest Rates
- Subject
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Endogenous Liquidity
Volume Effect
Credit Default Swaps
Order Book
- Event
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Geistige Schöpfung
- (who)
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Durand, Philippe
Gündüz, Yalin
Thomazeau, Isabelle
- Event
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Veröffentlichung
- (who)
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Deutsche Bundesbank
- (where)
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Frankfurt a. M.
- (when)
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2012
- Handle
- Last update
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10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Durand, Philippe
- Gündüz, Yalin
- Thomazeau, Isabelle
- Deutsche Bundesbank
Time of origin
- 2012
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