Competition, signaling and non-walking through the book: Effects on order choice
AbstractWe investigate the effects of competition and signaling in a pure order driven market and examine the trading patterns of agents when walking through the book is not allowed. Our results suggest that the variables capturing the cost of a large market order are not informative for an impatient trader under this market mechanism. We also document that the competition effect is not present only at the top of the book but persistent beyond the best quotes. Moreover, it dominates the signaling effect for both a limit order and a market order trader. Finally, we show that institutional investors’ order submission strategies are characterized by only a few pieces of the limit order book information. This is consistent with informed traders placing orders based on their own private valuations rather than the state of the book.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 37 (2013)
Issue (Month): 12 ()
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Web page: http://www.elsevier.com/locate/jbf
Limit order book; Order aggressiveness; Order-driven markets; Walking through the book; Competition; Signaling;
Find related papers by JEL classification:
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G19 - Financial Economics - - General Financial Markets - - - Other
- G20 - Financial Economics - - Financial Institutions and Services - - - General
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