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Cancellation and Uncertainty Aversion on Limit Order Books Author info | Abstract | Publisher info | Download info | Related research | Statistics Jeremy Large () (Nuffield College, Oxford University, UK)
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This paper models limit order books where each trader is uncertain of the underlying distribution in the asset's value to others. If this uncertainty is rapidly resolved, eeting limit orders are submitted and quickly cancelled. This enhances liquidity supply, but leaves intact established comparative statics results on spreads. However, risk neutral liquidity suppliers are averse to persistent uncertainty due to concavity in the function describing limit order utility, and spreads widen. This helps explain wide spreads in the morning. The model describes traders who in equilibrium correctly anticipate market orders' endogenous stochastic intensities. It highlights how limit orders queue for execution.
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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number
2004-W05.
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Length: 31 pages
Date of creation: 25 Feb 2004Date of revision:
Handle: RePEc:nuf:econwp:045Contact details of provider: Web page: http://www.nuff.ox.ac.uk/economics/
For technical questions regarding this item, or to correct its listing, contact: (Catherine McNeill).
Keywords: market microstructure limit order book fleeting orders order cancellation. Other versions of this item:
Find related papers by JEL classification: D8 - Microeconomics - - Information, Knowledge, and Uncertainty G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports :
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Hans Degryse & Mark Van Achter & Gunther Wuyts, 2007.
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Research series
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"Dynamic Order Submission Strategies with Competition between a Dealer Market and a Crossing Network ,"
Discussion Paper
2007-017, Tilburg University, Tilburg Law and Economic Center.
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