Execution Probability of Limit Orders on the Tokyo Stock Exchange

31 Pages Posted: 18 Dec 2000

See all articles by Keiichi Omura

Keiichi Omura

Waseda University - Graduate School of Commerce

Yasuhiko Tanigawa

Waseda University - Graduate School of Commerce

Jun Uno

Waseda University

Date Written: November 2000

Abstract

We reconstruct order flow at the Tokyo Stock Exchange (TSE) for December 1998 from tick-by-tick transactions data that cover the entire market. The TSE is a pure order-driven market, and executions are carried out by matching limit orders on the limit order book with incoming market orders. We estimate probabilities of limit orders to be executed entirely within a day to find the following relationships:

1) execution probabilities of limit orders are low when the depth of the same side of the limit order book is thick;

2) execution probabilities are high when the depth of the opposite side of the book is thick;

3) execution probabilities are low when there are open ticks between the bid-ask spread; and

4) execution probabilities are higher for limit orders submitted during earlier times of the day.

These statistically significant evidences indicate that traders understand the implications of several factors of limit orders on the priority for their execution.

Keywords: Limit orders, market orders, execution probabilities, probit model, tick-by-tick data, bid-ask spreads

JEL Classification: G10, G15, G20

Suggested Citation

Omura, Keiichi and Tanigawa, Yasuhiko and Uno, Jun, Execution Probability of Limit Orders on the Tokyo Stock Exchange (November 2000). Available at SSRN: https://ssrn.com/abstract=252588 or http://dx.doi.org/10.2139/ssrn.252588

Keiichi Omura

Waseda University - Graduate School of Commerce ( email )

1-6-1, Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050
Japan

Yasuhiko Tanigawa (Contact Author)

Waseda University - Graduate School of Commerce ( email )

1-6-1, Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050
Japan

Jun Uno

Waseda University ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku
Tokyo, 1698050
Japan

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