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A Competing Risk Analysis of Executions and Cancellations in a Limit Order Market

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Author Info
Bidisha Chakrabarty () (Saint Louis University)
Zhaohui Han () (Financial Engineering Group, ITG Inc.)
Konstantin Tyurin () (Indiana University Bloomington)
Xiaoyong Zheng () (North Carolina State University)
Abstract

The competing risks technique is applied to the analysis of times to execution and cancellation of limit orders submitted on an electronic trading platform. Time-to-execution is found to be more sensitive to the limit price variation than time-to-cancellation, even though it is less sensitive to the limit order size. More importantly, investors who aim to reduce the expected time-to-execution for their limit orders without inducing any significant increase in the risk of subsequent cancellation should submit their orders when the market depth is smaller on the side of their orders or when the market depth is greater on the opposite side of their orders. We also provide a new diagnostic plots method for evaluating the goodness-of-fit of different competing risks models.

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Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2006-015.

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Length: 52 pages
Date of creation: Oct 2006
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Handle: RePEc:inu:caeprp:2006015

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Keywords: Market microstructure; limit order; competing risks; hazard rate; frailty;

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Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions

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