Limit Order Revisions
33 Pages Posted: 14 Mar 2006 Last revised: 16 Dec 2009
Date Written: December 9, 2009
Abstract
This paper empirically examines limit order revisions and cancellations which contribute to a significant portion of the order activity in many order-driven markets. We document that limit orders are more likely to be revised or cancelled if they are large and near the bid-ask quote. We show that order revisions generate net economic benefits to traders. Our evidence shows strong links between these activities and limit order submission risk using bid-ask spread, volatility and post-event return as proxies. We also find that these activities are less intense when the opportunity cost to monitor a stock is high, such as during lunch hours or when stock volume relative to the entire market is low.
Keywords: market microstructure, limit orders, free trading option risk, non-execution risk
JEL Classification: F10, G14
Suggested Citation: Suggested Citation