Abstract

http://ssrn.com/abstract=474222
 
 

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Do Limit Orders Alter Inferences About Investor Performance and Behavior?


Juhani T. Linnainmaa


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

October 7, 2009

AFA 2004 San Diego Meetings
Journal of Finance, Forthcoming

Abstract:     
Individual investors lose money around earnings announcements, experience poor post-trade returns, exhibit the disposition effect, and make contrarian trades. Using simulations and trading records of all individuals in Finland, I find that investors’ use of limit orders is largely responsible for these trading patterns. These patterns arise mechanically because limit orders are price-contingent and face the adverse selection problem. Reverse causality from behavioral biases to order choices does not appear to explain my findings. I propose a simple method for measuring a data set’s susceptibility to this limit order effect.

Number of Pages in PDF File: 62

Keywords: investor behavior, individual investors, limit order effect

JEL Classification: G11

Accepted Paper Series


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Date posted: December 8, 2003 ; Last revised: February 8, 2010

Suggested Citation

Linnainmaa, Juhani T., Do Limit Orders Alter Inferences About Investor Performance and Behavior? (October 7, 2009). AFA 2004 San Diego Meetings; Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=474222 or http://dx.doi.org/10.2139/ssrn.474222

Contact Information

Juhani T. Linnainmaa (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
(773) 834-3176 (Phone)
(773) 753-1052 (Fax)
HOME PAGE: http://faculty.chicagobooth.edu/juhani.linnainmaa
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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