Liquidity Dynamics Around Jumps: The Evidence from the Warsaw Stock Exchange

Abstract

ABSTRACTThe aim of our study is to examine the dynamics of trading volume and the number of trades around jumps detected in intraday stock returns. We detect jumps in equally spaced 10-minute returns for most liquid stocks quoted on the Warsaw Stock Exchange within one-year sample period. We match jumps with macroeconomic and firm specific news. We find that only the minority of jumps is associated with public information releases, whereas the majority of them is motivated by liquidity shocks observed in the spreads, volume, and the number of trades. Our findings show that jumps are related to the inability of the market to absorb new and big orders. Liquidity shocks in volatility, volume, and quoted spread are the key drivers accompanying the occurrence of the jumps. Finally, the introduction of a faster and more efficient trading system improves the liquidity by increasing the depth of the market.