Abstract
The purpose of this paper is to estimate the functions impulsions-response of liquidity on the Tunisian Stock Exchange (TSE). We will use the methodology proposed by Abrigo and Love (2016). Our study is done on an order-driven market. The data is composed of high frequency data of orders listed on the TSE for the period April 2014 to June 2014. Inspired of the study of Jarnecic and Snape (2014), we apply a panel VAR model to stocks traded in continuous in order to examine the dynamic interactions between spread, volatility, size and frequency of transactions. Then we study the liquidity of the TSE through the impulse response function of the Panel VAR model. Our findings show dynamic relationships between spread, volatility, size and frequency of trading. 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 after three gaps of 45minutes.
Highlights
Estimation of market quality is an important topic for empirical analysis of market efficiency and microstructure
This section reports the empirical results from the system-generalized method of moment panel vector autoregression (PVAR) and the impulse response functions analysis
The descriptive statistics of the data raised from the Tunisian stock exchange are summarized in table1
Summary
Estimation of market quality is an important topic for empirical analysis of market efficiency and microstructure. Market quality is estimated with the order submission strategies of participants, the nature of liquidity and volatility. Prior studies examine limit order book dynamics and have provided researchers and practitioners with a number of stylized empirical observations of the limit order book. Despite this important role, their estimates are not available, or where available, are subject to error. Our objective will be to capture the dynamics of short-term liquidity, price volatility, the pricing process and their relationship to order frequency. The model shall incorporate relevant characteristics of the process of entry of orders with a limited price on the market, including the variables representing the dimensions of the order book defined by the frequency of placing orders. Impulse response functions have been widely discussed in previous studies on resilience such as Hmaied and al., 2006 and Coppejans and al., 2004
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