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Waiting costs and limit order book liquidity: Evidence from the ex-dividend deadline in Australia

journal contribution
posted on 01.09.2014, 00:00 authored by A Ainsworth, Adrian LeeAdrian Lee
In theoretical models of limit order books populated with liquidity traders there is a link between order aggressiveness, spreads, and the cost of waiting for execution. We directly test these models using an experimental setting where waiting time is important for traders, namely the ex-dividend day. Consistent with these models, we find that order placement is more aggressive before stocks begin trading ex-dividend. Stocks with higher expected costs of delaying execution experience larger declines in order aggressiveness from the cum-day to the ex-day. Waiting costs also impact effective bid-ask spreads, which fall on the cum-day before rising on the ex-day. © 2014 Elsevier B.V.

History

Journal

Journal of Financial Markets

Volume

20

Pagination

101 - 128

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

1386-4181

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal; C Journal article