The Tail Risks of FX Return Distributions: A Comparison of the Returns Associated with Limit Orders and Market Orders

15 Pages Posted: 25 Jun 2007

See all articles by John Cotter

John Cotter

University College Dublin; University of California, Los Angeles (UCLA) - Anderson School of Management

Kevin Dowd

Nottingham University Business School (NUBS)

Date Written: May 18, 2007

Abstract

This paper measures and compares the tail risks of limit and market orders using Extreme Value Theory. The analysis examines realised tail outcomes using the Dealing 2000-2 electronic broking system based on completed transactions rather than the more common analysis of indicative quotes. In general, limit and market orders exhibit broadly similar tail behaviour, but limit orders have significantly heavier tails and larger tail quantiles than market orders.

Keywords: limit orders, market orders, tail risks

JEL Classification: G1, G15, G32

Suggested Citation

Cotter, John and Dowd, Kevin, The Tail Risks of FX Return Distributions: A Comparison of the Returns Associated with Limit Orders and Market Orders (May 18, 2007). Available at SSRN: https://ssrn.com/abstract=996066 or http://dx.doi.org/10.2139/ssrn.996066

John Cotter (Contact Author)

University College Dublin ( email )

School of Business, Carysfort Avenue
Blackrock, Co. Dublin
Ireland
353 1 716 8900 (Phone)
353 1 283 5482 (Fax)

HOME PAGE: http://www.ucd.ie/bankingfinance/staff/professorjohncotter/

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Kevin Dowd

Nottingham University Business School (NUBS) ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

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