Intraday asymmetric liquidity and asymmetric volatility in FTSE-100 futures market

In this study, we use both quote and trade data for the FTSE-100 futures for 2001-2004 in order to examine asymmetric volatility in the context of extreme sells. We define extreme sells as ask quotes that involve large percentages of total depth, selling orders executed at prices much closer to bids than to asking prices, and consecutive sell-initiated trades. Sell trades tend to demand higher liquidity than buys, while extreme trading conditions demand more liquidity than non-extreme ones. In extreme sells, liquidity demand surpasses supply. We show that asymmetric liquidity (quote demand vs. supply) better explains the asymmetric volatility observed in high-frequency data than trade information does. Ask-depth share plays a dominant role in asymmetric volatility, while order flow (sell-initiated volume share) makes a far smaller contribution. (C) 2013 Published by Elsevier B.V.