Limit-Order Submission Strategies under Asymmetric Information

42 Pages Posted: 19 May 2010

See all articles by Lukas Menkhoff

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin - Faculty of Economics

Carol L. Osler

Brandeis University - International Business School

Maik Schmeling

Goethe University Frankfurt - Department of Finance; Centre for Economic Policy Research (CEPR)

Date Written: May 2010

Abstract

This paper provides evidence that informed traders dominate the response of limit-order submissions to shocks in a pure limit-order market. In the market we study, informed traders are highly sensitive to spreads, volatility, momentum and depth. By contrast, uninformed traders are relatively insensitive to all these market conditions. The dominance of the informed over limit-order submissions is magnified by contrasts between them and the uninformed in the use of aggressively-priced limit orders.

Keywords: limit-order market, order submission, informed traders, market conditions

JEL Classification: G20

Suggested Citation

Menkhoff, Lukas and Osler, Carol L. and Schmeling, Maik, Limit-Order Submission Strategies under Asymmetric Information (May 2010). CESifo Working Paper Series No. 3054. Available at SSRN: https://ssrn.com/abstract=1610091

Lukas Menkhoff (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

Carol L. Osler

Brandeis University - International Business School ( email )

Mailstop 32
Waltham, MA 02454-9110
United States
781-736-4826 (Phone)

Maik Schmeling

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60323
Germany

HOME PAGE: http://sites.google.com/site/maikschmeling/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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