Correlated Behavior in Limit Order Cancellations, Comovement in Asset Returns, and Commonality in Liquidity
Document Type
Article
Publication Date
Spring 2020
Abstract
We examine whether there is common behavior in limit order cancellation activity, that is, commonality in cancellation activity, on U.S. exchanges. We then examine whether this commonality in cancellation activity is associated with increased levels of return comovement and commonality in liquidity. We document strong evidence of limit order traders exhibiting exchange, industry, marketwide, and stock‐level commonality with regard to cancellation activity, which is consistent with limit order traders exhibiting correlated trading behavior. We also find that this correlated behavior in cancellation activity is associated with increased levels of return comovement and commonality in liquidity.
Publication Information
Egginton, Jared and Watson, Ethan D.. (2020). "Correlated Behavior in Limit Order Cancellations, Comovement in Asset Returns, and Commonality in Liquidity". Journal of Financial Research, 43(1), 37-62. https://dx.doi.org/10.1111/jfir.12200