Abstract
In spite of the rapid adoption of electronic limit order markets all over the world, many questions concerning the nature and characteristics of liquidity in automated systems remain unanswered. This paper examines the dynamic behaviour of market liquidity on the Tunisian stock exchange (BVMT) using high frequency data from a reconstructed limit order book. The BVMT is an electronic pure order driven market that relies only on limit orders to supply liquidity, which may affect its viability and its resiliency. First, we apply a VAR model to stocks traded in continuous in order to examine if dynamic interactions exist between liquidity and volatility. Second, we study the resiliency of the BVMT through the impulse response function of the VAR model. Our findings show dynamic relationships between spread, depth and volatility. Some differences exist in the dynamics of liquidity when we take into account the trading intensity of the stock. Furthermore, we note that shocks are absorbed more quickly for freque...
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