Market vs. Limit Orders: The Superdot Evidence on Order Submission Strategy

Posted: 25 Sep 1996

See all articles by Lawrence Harris

Lawrence Harris

University of Southern California - Marshall School of Business - Finance and Business Economics Department; Institute for Quantitative Research in Finance (the Q-Group); Financial Economists Roundtable; Interactive Brokers, Inc. (IBKR)

Joel Hasbrouck

New York University (NYU) - Department of Finance

Abstract

This paper discusses performance measures for market and limit orders. We suggest two measures: one for precommitted traders (who must trade) and another for passive traders (who are indifferent to trading). We compute these measures for a sample of NYSE SuperDOT orders. The results suggest that the limit order placement strategies most commonly used by NYSE SuperDOT traders do in fact perform best. Limit orders placed at or better than the prevailing quote perform better than do market orders, even after imputing a penalty for unexecuted orders, and after taking into account market-order price improvement. Unconditional order submission strategies that use SuperDOT to offer liquidity in competition with the specialist do not appear to be profitable.

JEL Classification: G14

Suggested Citation

Harris, Lawrence and Hasbrouck, Joel, Market vs. Limit Orders: The Superdot Evidence on Order Submission Strategy. J. OF FINANCIAL AND QUANTITATIVE ANALYSIS, June 1996, Available at SSRN: https://ssrn.com/abstract=7758

Lawrence Harris (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
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Institute for Quantitative Research in Finance (the Q-Group) ( email )

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Joel Hasbrouck

New York University (NYU) - Department of Finance ( email )

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