Competition, Signaling and Non-Walking Through the Book: Effects on Order Choice
40 Pages Posted: 2 Aug 2012 Last revised: 4 May 2013
Date Written: March 2013
Abstract
We investigate the effects of competition and signaling in a pure order driven market and examine the trading patterns of agents when walking through the book is not allowed. Our results suggest that the variables capturing the cost of a large market order are not informative for an impatient trader under this market mechanism. We also document that the competition effect is not present only at the top of the book but persistent beyond the best quotes. Moreover, it dominates the signaling effect for both a limit order and a market order trader. Finally, we show that institutional investors' order submission strategies are characterized by only a few pieces of the limit order book information. This is consistent with informed traders placing orders based on their own private valuations rather than the state of the book.
Keywords: Limit Order Book, Order Aggressiveness, Order-Driven Markets, Walking through the Book, Competition, Signaling
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Limit Order Book as a Market for Liquidity
By Thierry Foucault, Ohad Kadan, ...
-
Limit Order Book as a Market for Liquidity
By Thierry Foucault, Ohad Kadan, ...
-
Equilibrium in a Dynamic Limit Order Market
By Ronald L. Goettler, Christine A. Parlour, ...
-
Empirical Analysis of Limit Order Markets
By Burton Hollifield, Robert A. Miller, ...
-
The 'Make or Take' Decision in an Electronic Market: Evidence on the Evolution of Liquidity
By Robert J. Bloomfield, Maureen O'hara, ...
-
A Dynamic Model of the Limit Order Book
By Ioanid Rosu
-
Econometric Models of Limit-Order Executions
By Andrew W. Lo, A. Craig Mackinlay, ...
-
Limit Orders and Volatility in a Hybrid Market: The Island Ecn
By Joel Hasbrouck and Gideon Saar
-
Limit Orders and Volatility in a Hybrid Market: The Island Ecn
By Joel Hasbrouck and Gideon Saar
-
Information and Trading on Electronic Communications Networks
By Michael J. Barclay, Terrence Hendershott, ...