This paper studies short-term liquidity withdrawal in the FX spot market for eight currency pairs. We include over 3 million limit order submissions, worth more than $5 trillion, and investigate the drivers of two different measures of volume-based liquidity. Overall, we find that market participants react differently to changes in the state of the market for different currency pairs. Moreover, the liquidity withdrawal process also differs depending on the perceived information content of new limit orders submitted. Finally, we document that a ‘liquidity illusion’ might exist in FX spot markets electronic trading platforms where algorithmic and high-frequency trading is prominent.
|Journal||Journal of International Financial Markets, Institutions and Money|
|Early online date||27 Nov 2018|
|Publication status||Published - 1 Mar 2019|
- market microstructure
- limit order book
- foreign exchange
- high-frequency trading
- algorithmic trading
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Data availability statement for 'Liquidity withdrawal in the FX spot market: a cross-country study using high-frequency data'.
Stenfors, A. (Creator) & Susai, M. (Creator), Elsevier BV, 25 Jul 2018