Large stock price changes: volume or liquidity?

We analyze large stock price changes of more than five standard deviations for i) TAQ data for the year 1997 and ii) order book data from the Island ECN for the year 2002. We argue that large price changes are not due to large trading volumes. Instead, we find that extreme price fluctuations are mainly caused by a low density of limit orders stored in the order book, i.e. a small liquidity.