Abstract
In this paper, we investigate liquidity supply and demand around price jumps in a pure order driven stock market using a detailed tick frequency data set on the Euronext 100 index. The advantage of this database is to allow us to disentangle two major evolutions in European financial markets: the emergence of high frequency trading and the implementation of multilateral trading facilities. We generate average 2-minute trading volume interval and assess liquidity dynamics through an extensive set of order book-based measures (liquidity supply) and trade-based measures (liquidity demand). Furthermore, we also consider order submission dynamics and investor types activity around price jumps. We find the origin of market disruptions lies in a low liquidity supply while at the opposite liquidity demand slows down. All our results suggest a higher involvement of high frequency trading activity in the market around price jumps. To emphasize our findings, we conduct bidirectional Granger causality tests that support our results.
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