A Competing Risk Analysis of Executions and Cancellations in a Limit Order Market

52 Pages Posted: 4 Oct 2006  

Bidisha Chakrabarty

Saint Louis University - John Cook School of Business

Konstantin Tyurin

ITG Inc., Financial Engineering

Zhaohui Han

Financial Engineering Group, ITG Inc.

Xiaoyong Zheng

North Carolina State University

Date Written: October 4, 2006

Abstract

The competing risks technique is applied to the analysis of times to execution and cancellation of limit orders submitted on an electronic trading platform. Time-to-execution is found to be more sensitive to the limit price variation than time-to-cancellation, even though it is less sensitive to the limit order size. More importantly, investors who aim to reduce the expected time-to-execution for their limit orders without inducing any significant increase in the risk of subsequent cancellation should submit their orders when the market depth is smaller on the side of their orders or when the market depth is greater on the opposite side of their orders. We also provide a new diagnostic plots method for evaluating the goodness-of-fit of different competing risks models.

Keywords: Market microstructure, limit order, competing risks, hazard rate, frailty

JEL Classification: G14, G23

Suggested Citation

Chakrabarty, Bidisha and Tyurin, Konstantin and Han, Zhaohui and Zheng, Xiaoyong, A Competing Risk Analysis of Executions and Cancellations in a Limit Order Market (October 4, 2006). CAEPR Working Paper No. 2006-015. Available at SSRN: https://ssrn.com/abstract=934785 or http://dx.doi.org/10.2139/ssrn.934785

Bidisha Chakrabarty (Contact Author)

Saint Louis University - John Cook School of Business ( email )

3674 Lindell Blvd
St. Louis, MO MO 63108-3397
United States
3149773607 (Phone)
3149771479 (Fax)

HOME PAGE: http://business.slu.edu/departments/finance/faculty-staff/bidisha-chakrabarty

Konstantin Tyurin

ITG Inc., Financial Engineering ( email )

44 Farnsworth Street
9th Floor
Boston, MA 02210
United States

Zhaohui Han

Financial Engineering Group, ITG Inc. ( email )

Xiaoyong Zheng

North Carolina State University ( email )

Box 8109
3332 Nelson Hall
Raleigh, NC 27695-8109
United States
919-515-4543 (Phone)
919-515-6268 (Fax)

HOME PAGE: http://www4.ncsu.edu/~xzheng

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