Perceptions of futures market liquidity: An empirical study of CBOT and CME traders

Traders' perceptions drive their market behavior, and can influence the dynamics of liquidity. This study surveyed 420 traders on their perceptions of the price path during an order imbalance to better understand the dynamics of liquidity. While most liquidity models assume a linear price path, only 12 percent of traders perceive such a path. This raises questions on the validity of such models. There is considerable heterogeneity in the perceptions of the price path. While trader characteristics are often used to classify traders, trader characteristics do not explain the heterogeneity in perceptions. In contrast, traders of a specific contract are associated with particular perceptions of the price path. This indicates that market microstructure may be the primary driver of traders' perceptions of the price path.