How large is liquidity risk in an automated auction market?

  • Pierre Giot
  • Joachim Grammig
Part of the Studies in Empirical Economics book series (STUDEMP)

We introduce a new empirical methodology that models liquidity risk over short time periods for impatient traders who submit market orders. Using Value-at-Risk type measures, we quantify the liquidity risk premia for portfolios and individual stocks traded on the automated auction market Xetra. The specificity of our approach relies on the adequate econometric modelling of the potential price impact incurred by the liquidation of a portfolio. We study the sensitivity of liquidity risk towards portfolio size and traders' time horizon, and interpret its diurnal variation in the light of market microstructure theory.


Limit Order Price Impact Order Book Liquidity Risk Portfolio Size 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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Copyright information

© Physica-Verlag Heidelberg 2008

Authors and Affiliations

  • Pierre Giot
    • 1
    • 2
  • Joachim Grammig
    • 3
    • 4
  1. 1.Department of Business Administration & CEREFIMUniversity of NamurNamurBelgium
  2. 2.COREUniversité catholique de LouvainLouvainBelgium
  3. 3.University of TübingenTübingenGermany
  4. 4.Centre for Financial ResearchCologneGermany

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