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Bid-Ask Bounce and the Intraday Performance of Limit Orders: Evidence from the Taiwan Stock Exchange

Author

Listed:
  • Yu-Li Liang

    (Department of Business Administration, National Taiwan University of Science and Technology, ROC;
    Department of Business Administration, Tung Nan Institute of Technology, ROC)

  • Ching-Hai Jiang

    (Department of Finance, National United University, ROC)

  • Yen-Sheng Huang

    (Department of Business Administration, National Taiwan University of Science and Technology, ROC)

Abstract

This paper examines the performance of limit orders versus market orders using intraday transaction prices for all stocks listed on the Taiwan Stock Exchange over the first three months of 1999. The results indicate that executed limit orders significantly outperform market orders. Moreover, even after including the impact of unfilled limit orders, the unconditional limit orders still perform slightly better than the corresponding market orders. The superior performance of limit orders is consistent with the explanation that limit order traders benefit from the bid-ask bounce driven by liquidity trading in the Taiwan stock market. By replacing the buy and sell prices by the bid-ask average, the superior profitability of limit orders decline significantly.

Suggested Citation

  • Yu-Li Liang & Ching-Hai Jiang & Yen-Sheng Huang, 2004. "Bid-Ask Bounce and the Intraday Performance of Limit Orders: Evidence from the Taiwan Stock Exchange," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 7(02), pages 191-211.
    • Handle: RePEc:wsi:rpbfmp:v:07:y:2004:i:02:n:s0219091504000111
    DOI: 10.1142/S0219091504000111
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    Cited by:

    1. He, Yan & Wang, Junbo & Wu, Chunchi, 2013. "Domestic versus foreign equity shares: Which are more costly to trade in the Chinese market?," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 465-481.

    More about this item

    Keywords

    Bid-ask bounce; limit order; Taiwan Stock Exchange; JEL Classification G14; JEL Classification G15; JEL Classification G18;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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