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News, liquidity dynamics and intraday jumps: evidence from the HUF/EUR market

Michael Frömmel (UGent) , Xing Han (UGent) and Frederick Van Gysegem (UGent)
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Abstract
We study intraday jumps on a pure limit order FX market by linking them to news announcements and liquidity shocks. First, we show that jumps are frequent and contribute greatly to the return volatility. Nearly half of the jumps can be linked with scheduled and unscheduled news announcements. Furthermore, we show that jumps are information based, whether they are linked with news announcements or not. Prior to jumps, liquidity does not deviate from its normal level, nor do liquidity shocks offer any predictive power for jump occurrence. Jumps emerge not as a result of unusually low liquidity but rather as a result of an unusually high demand for immediacy concentrated on one side of the book. During and after the jump, a dynamic order placement process emerges: some participants endogenously become liquidity providers and absorb the increased demand for immediacy. We detect an interesting asymmetry and find the liquidity providers to be more reluctant to add liquidity when confronted with a news announcement around the jump. Further evidence shows that participants submit more limit orders relative to market orders after a jump. Consequently, the informational role of order flow becomes less pronounced in the thick order book after the jump.
Keywords
foreign exchange, limit order book, microstructure, jumps, Hungary, liquidity

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Chicago
Frömmel, Michael, Xing Han, and Frederick Van Gysegem. 2013. “News, Liquidity Dynamics and Intraday Jumps: Evidence from the HUF/EUR Market.” Faculteit Economie En Bedrijfskunde : Working Papers (2013). Ghent, Belgium: Ghent University, Faculty of Economics and Business Administration.
APA
Frömmel, M., Han, X., & Van Gysegem, F. (2013). News, liquidity dynamics and intraday jumps: evidence from the HUF/EUR market. Faculteit economie en bedrijfskunde : working papers (2013). Ghent, Belgium: Ghent University, Faculty of Economics and Business Administration.
Vancouver
1.
Frömmel M, Han X, Van Gysegem F. News, liquidity dynamics and intraday jumps: evidence from the HUF/EUR market. Faculteit economie en bedrijfskunde : working papers (2013). Ghent, Belgium: Ghent University, Faculty of Economics and Business Administration; 2013. p. 1–51.
MLA
Frömmel, Michael, Xing Han, and Frederick Van Gysegem. “News, Liquidity Dynamics and Intraday Jumps: Evidence from the HUF/EUR Market.” Faculteit economie en bedrijfskunde : working papers (2013) 2013 : 1–51. Print.
@misc{4122450,
  abstract     = {We study intraday jumps on a pure limit order FX market by linking them to news announcements and liquidity shocks. First, we show that jumps are frequent and contribute greatly to the return volatility. Nearly half of the jumps can be linked with scheduled and unscheduled news announcements. Furthermore, we show that jumps are information based, whether they are linked with news announcements or not. Prior to jumps, liquidity does not deviate from its normal level, nor do liquidity shocks offer any predictive power for jump occurrence. Jumps emerge not as a result of unusually low liquidity but rather as a result of an unusually high demand for immediacy concentrated on one side of the book. During and after the jump, a dynamic order placement process emerges: some participants endogenously become liquidity providers and absorb the increased demand for immediacy. We detect an interesting asymmetry and find the liquidity providers to be more reluctant to add liquidity when confronted with a news announcement around the jump. Further evidence shows that participants submit more limit orders relative to market orders after a jump. Consequently, the informational role of order flow becomes less pronounced in the thick order book after the jump.},
  author       = {Frömmel, Michael and Han, Xing and Van Gysegem, Frederick},
  keywords     = {foreign exchange,limit order book,microstructure,jumps,Hungary,liquidity},
  language     = {eng},
  pages        = {1--51},
  publisher    = {Ghent University, Faculty of Economics and Business Administration},
  series       = {Faculteit economie en bedrijfskunde : working papers (2013)},
  title        = {News, liquidity dynamics and intraday jumps: evidence from the HUF/EUR market},
  url          = {http://www.feb.ugent.be/nl/Ondz/WP/Papers/wp_13_847.pdf},
  volume       = {2013},
  year         = {2013},
}