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Limit Order Trading


Puneet Handa


University of Iowa - Department of Finance

Robert A. Schwartz


Baruch College - CUNY

J. OF FINANCE, Vol. 51 No. 5, December 1996

Abstract:     
We analyze the rationale for limit order trading. Use of limit orders involves two risks: (1) an adverse information event can trigger an undesirable execution, and (2) favorable news can result in a desirable execution not being obtained. On the other hand, a paucity of limit orders can result in accentuated short-term price fluctuations which compensate a limit order trader. Our empirical tests suggest that trading via limit orders dominates trading via market orders for market participants with relatively well balanced portfolios, and that placing a network of buy and sell limit orders as a pure trading strategy is profitable.

JEL Classification: G10

Accepted Paper Series


Date posted: March 19, 1997  

Suggested Citation

Handa, Puneet and Schwartz, Robert A., Limit Order Trading. J. OF FINANCE, Vol. 51 No. 5, December 1996. Available at SSRN: http://ssrn.com/abstract=8200

Contact Information

Puneet Handa (Contact Author)
University of Iowa - Department of Finance ( email )
Tippie College of Business, 108 PBB
Iowa City, IA 52242
United States
319-335-2731 (Phone)
319-335-3690 (Fax)
Robert A. Schwartz
Baruch College - CUNY ( email )
Zicklin School of Business
17 Lexington Avenue
New York, NY 10010
United States
646-312-3467 (Phone)
646-312-3530 (Fax)
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