Limit Order Revisions

33 Pages Posted: 14 Mar 2006 Last revised: 16 Dec 2009

See all articles by Kingsley Y. L. Fong

Kingsley Y. L. Fong

University of New South Wales - School of Banking and Finance

Wai-Man Liu

Australian National University

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

Fong, Kingsley Y. L. and Liu, Wai-Man, Limit Order Revisions (December 9, 2009). Available at SSRN: https://ssrn.com/abstract=890463 or http://dx.doi.org/10.2139/ssrn.890463

Kingsley Y. L. Fong (Contact Author)

University of New South Wales - School of Banking and Finance ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Wai-Man Liu

Australian National University ( email )

Canberra, Australian Capital Territory 2601
Australia

HOME PAGE: http://https://www.cbe.anu.edu.au/about/staff-directory/?profile=Wai-Man%20(Raymond)-Liu

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