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

Authors
  • Marsh, J.W.
  • Pennings, J.M.E.
  • Garcia, P.
Publication Date
Jan 01, 2004
Source
Wageningen University and Researchcenter Publications
Keywords
Language
English
License
Unknown
External links

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

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