Economics, Econometrics and Finance
4 years ago

Financial stocks suffer liquidity crisis during 2008 short selling ban.

SSRN Electronic Journal
Bid- and Ask-Side Liquidity in the NYSE Limit Order Book
Tolga Cenesizoglu, Gunnar Grass

Paper Summary

The study looked at bid and ask-side liquidity in the NYSE limit order book over 11 years. They found that during the 2008 short selling ban, ask-side liquidity of financial stocks worsened. Also, bid-side liquidity decreased with past high returns, while ask-side liquidity increased. During the financial crisis, bid-side liquidity became more similar. Lastly, ask-side illiquidity predicted daily returns, and both bid and ask-side illiquidity predicted monthly returns.

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