Fleeting Orders

34 Pages Posted: 13 Jun 2013

See all articles by Shmuel Baruch

Shmuel Baruch

University of Rome Tor Vergata, Department of Economics and Finance

Lawrence R. Glosten

Columbia University

Date Written: June 11, 2013

Abstract

We study a dynamic limit order market with a finite number of strategic liquidity suppliers who post limit orders. Their limit orders are hit by either news (i.e. informed) traders or noise traders. We show that repeatedly playing a mixed strategy equilibrium of a certain static game is a subgame perfect equilibrium with fleeting orders and flickering quotes. Furthermore, regardless of the distributions of the liquidation value and noise trade quantity, we always find a sequence of equilibria in mixed strategies such that the resulting random supply schedule converges in mean square, as the number of liquidity suppliers increases to infinity, to the deterministic competitive supply function.

Keywords: market microstructure, liquidity, limit orders, flickering quotes

JEL Classification: C73, D53

Suggested Citation

Baruch, Shmuel and Glosten, Lawrence R., Fleeting Orders (June 11, 2013). Columbia Business School Research Paper No. 13-43, Available at SSRN: https://ssrn.com/abstract=2278457 or http://dx.doi.org/10.2139/ssrn.2278457

Shmuel Baruch

University of Rome Tor Vergata, Department of Economics and Finance ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

Lawrence R. Glosten (Contact Author)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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