Abstract

http://ssrn.com/abstract=994369
 
 

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Citations (43)



 


 



Technology and Liquidity Provision: The Blurring of Traditional Definitions


Joel Hasbrouck


New York University (NYU) - Department of Finance

Gideon Saar


Cornell University - Samuel Curtis Johnson Graduate School of Management

December 30, 2007


Abstract:     
Limit orders are usually viewed as patiently supplying liquidity. We investigate the trading of one hundred Nasdaq-listed stocks on INET, a limit order book. In contrast to the usual view, we find that over one-third of nonmarketable limit orders are cancelled within two seconds. We investigate the role these "fleeting orders" play in the market and test specific hypotheses about their uses. We find evidence consistent with dynamic trading strategies whereby traders chase market prices or search for latent liquidity. We show that fleeting orders are a relatively recent phenomenon, and suggest that they have arisen from a combination of factors that includes improved technology, an active trading culture, market fragmentation, and an increasing utilization of latent liquidity.

Number of Pages in PDF File: 46

Keywords: fleeting orders, INET, limit orders, ECN, trading strategies, hidden liquidity, dark liquidity, supplying liquidity, demanding liquidity, technology, active trading, market fragmentation, duration analysis, survival analysis, limit order cancellation, proportional hazards model

JEL Classification: G1

working papers series





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Date posted: June 20, 2007 ; Last revised: April 30, 2008

Suggested Citation

Hasbrouck, Joel and Saar, Gideon, Technology and Liquidity Provision: The Blurring of Traditional Definitions (December 30, 2007). Available at SSRN: http://ssrn.com/abstract=994369 or http://dx.doi.org/10.2139/ssrn.994369

Contact Information

Joel Hasbrouck
New York University (NYU) - Department of Finance ( email )
44 West 4th Street
MEC Suite 9-190, Mail Code 0268
New York, NY 10012-1126
United States
212-998-0310 (Phone)
212-995-4233 (Fax)
Gideon Saar (Contact Author)
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
455 Sage Hall
Ithaca, NY 14853
United States
607-255-7484 (Phone)
607-255-5993 (Fax)
HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Saar/
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