Estimating the Gains From Trade in Limit Order Markets
AbstractWe present a method for identifying and estimating the gains from trade in limit order markets and provide new empirical evidence that the limit order market is a good market design. The gains from trade in our model arise because traders have different valuations for the stock. We use observations on the traders’ order submissions and the execution and cancellation histories of the traders’ order submissions to estimate the distribution of traders’ unobserved valuations for the stock. We use the parameter estimates for our model to compute the current gains from trade in the limit order market and the gains from trade that the traders would attain in a perfectly liquid market.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4432.
Date of creation: Jun 2004
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- Burton Hollifield & Robert A. Miller & Patrik Sand�S & Joshua Slive, 2006. "Estimating the Gains from Trade in Limit-Order Markets," Journal of Finance, American Finance Association, vol. 61(6), pages 2753-2804, December.
- C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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