The key role of liquidity fluctuations in determining large price changes

摘要

Recent empirical analyses have shown that liquidity fluctuations are important for understanding large price changes of financial assets. These liquidity fluctuations are quantified by gaps in the order book, corresponding to blocks of adjacent price levels containing no quotes. Here we study the statistical properties of the state of the limit order book for 16 stocks traded at the London Stock Exchange (LSE). We show that the time series of the first three gaps axe characterized by fat tails in the probability distribution and are described by long memory processes.