Perceptions of Futures Market Liquidity: An Empirical Study of CBOT & CME Traders

J.W. Marsh, J.M.E. Pennings, P. Garcia

Research output: Contribution to conferenceConference paperAcademicpeer-review

Abstract

Practitioner's Abstract: Traders' perceptions drive their market behavior, and can influence the dynamics of liquidity. This study surveyed 420 traders on their perceptions of the price path during an order imbalance to better understand the dynamics of liquidity. While most liquidity models assume a linear price path, only 12% of traders perceive such a path. This raises questions on the validity of such models. There is considerable heterogeneity in the perceptions of the price path. While trader characteristics are often used to classify traders, trader characteristics do not explain the heterogeneity in perceptions. On the other hand, traders of a specific contract are associated with particular perceptions of the price path. This indicates that market microstructure may be the primary driver of traders' perceptions of the price path. Keywords: Liquidity, market depth, market microstructure, trader behavior/perceptions
Original languageEnglish
Number of pages34
Publication statusPublished - 2004
EventNCR-134 Conference: Applied Commodity Price Analysis, Forecasting, and Market Risk Management -
Duration: 19 Apr 200420 Apr 2004

Conference

ConferenceNCR-134 Conference: Applied Commodity Price Analysis, Forecasting, and Market Risk Management
Period19/04/0420/04/04

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    Marsh, J. W., Pennings, J. M. E., & Garcia, P. (2004). Perceptions of Futures Market Liquidity: An Empirical Study of CBOT & CME Traders. Paper presented at NCR-134 Conference: Applied Commodity Price Analysis, Forecasting, and Market Risk Management, .