Do Limit Orders Alter Inferences About Investor Performance and Behavior?

62 Pages Posted: 8 Dec 2003 Last revised: 8 Feb 2010

See all articles by Juhani T. Linnainmaa

Juhani T. Linnainmaa

USC Marshall School of Business; National Bureau of Economic Research (NBER)

Date Written: October 7, 2009


Individual investors lose money around earnings announcements, experience poor post-trade returns, exhibit the disposition effect, and make contrarian trades. Using simulations and trading records of all individuals in Finland, I find that investors’ use of limit orders is largely responsible for these trading patterns. These patterns arise mechanically because limit orders are price-contingent and face the adverse selection problem. Reverse causality from behavioral biases to order choices does not appear to explain my findings. I propose a simple method for measuring a data set’s susceptibility to this limit order effect.

Keywords: investor behavior, individual investors, limit order effect

JEL Classification: G11

Suggested Citation

Linnainmaa, Juhani T., Do Limit Orders Alter Inferences About Investor Performance and Behavior? (October 7, 2009). AFA 2004 San Diego Meetings; Journal of Finance, Forthcoming. Available at SSRN: or

Juhani T. Linnainmaa (Contact Author)

USC Marshall School of Business ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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