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Liquidity shocks and intraday price reaction
Tao Chen
Source PublicationJournal of Financial Research
ABS Journal Level3

Using a global sample of high-frequency data, this study investigates how liquidity shocks affect intraday price movements. We find a negative association between liquidity shocks and price impact. This finding remains robust after considering the exogeneity of liquidity shocks, using alternative windows to measure liquidity shocks, and controlling for volume shocks and volatility shocks. Additional tests show that the documented relationship stems from idiosyncratic shocks and sell-order shocks. Moreover, we reveal that liquidity shocks are likely to be driven by uninformed traders. Eventually, our evidence suggests that the market requires 30 minutes to accomplish price adjustments when meeting liquidity shocks.

KeywordLiquidity Shocks Price Impact Uninformed Traders Intraday Market Efficiency
Indexed BySSCI
Document TypeJournal article
CollectionUniversity of Macau
Faculty of Business Administration
Corresponding AuthorTao Chen
AffiliationUniversity of Macau
First Author AffilicationUniversity of Macau
Corresponding Author AffilicationUniversity of Macau
Recommended Citation
GB/T 7714
Tao Chen. Liquidity shocks and intraday price reaction[J]. Journal of Financial Research,2022.
APA Tao Chen.(2022).Liquidity shocks and intraday price reaction.Journal of Financial Research.
MLA Tao Chen."Liquidity shocks and intraday price reaction".Journal of Financial Research (2022).
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