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Empirical Analysis of Limit Order Markets

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  • Burton Hollifield
  • Robert A. Miller
  • Patrik Sand�s
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    Abstract

    We provide empirical restrictions of a model of optimal order submissions in a limit order market. A trader's optimal order submission depends on the trader's valuation for the asset and the trade-offs between order prices, execution probabilities and picking off risks. The optimal order submission strategy is a monotone function of a trader's valuation for the asset. We test the monotonicity restriction in a sample of order submissions and their realized outcomes from the Stockholm Stock Exchange. We do not reject the monotonicity restriction for buy orders or sell orders considered separately, but reject the monotonicity restriction for buy and sell orders considered jointly. Copyright 2004, Wiley-Blackwell.

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    File URL: http://hdl.handle.net/10.1111/0034-6527.00313
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    Bibliographic Info

    Article provided by Oxford University Press in its journal The Review of Economic Studies.

    Volume (Year): 71 (2004)
    Issue (Month): 4 ()
    Pages: 1027-1063

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    Handle: RePEc:oup:restud:v:71:y:2004:i:4:p:1027-1063

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    Cited by:
    1. Ban Zheng & François Roueff & Frédéric Abergel, 2014. "Ergodicity and scaling limit of a constrained multivariate Hawkes process," Post-Print hal-00777941, HAL.
    2. Bayar, Onur, 2013. "Liquidity provision in a limit order book without adverse selection," Journal of Economics and Business, Elsevier, vol. 66(C), pages 98-124.
    3. Rama Cont & Adrien De Larrard, 2013. "Price Dynamics in a Markovian Limit Order Market," Post-Print hal-00552252, HAL.
    4. Sperl, Miriam, 2008. "Quantifying the efficiency of the Xetra LOB market: Detailed recipe," CFS Working Paper Series 2008/21, Center for Financial Studies (CFS).
    5. Anna Obizhaeva & Jiang Wang, 2005. "Optimal Trading Strategy and Supply/Demand Dynamics," NBER Working Papers 11444, National Bureau of Economic Research, Inc.
    6. Jung-Wook Kim & Jason Lee & Randall Morck, 2009. "Characteristics of Observed Limit Order Demand and Supply Schedules for Individual Stocks," NBER Working Papers 14733, National Bureau of Economic Research, Inc.

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