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The tail risks of FX return distributions: a comparison of the returns associated with limit orders and market orders

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Cotter, John
Dowd, Kevin

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Abstract

This paper measures and compares the tail risks of limit and market orders using Extreme Value Theory. The analysis examines realised tail outcomes using the Dealing 2000-2 electronic broking system based on completed transactions rather than the more common analysis of indicative quotes. In general, limit and market orders exhibit broadly similar tail behaviour, but limit orders have significantly heavier tails and larger tail quantiles than market orders.

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File URL: http://mpra.ub.uni-muenchen.de/3493/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3493.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:3493

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Find related papers by JEL classification:
G20 - Financial Economics - - Financial Institutions and Services - - - General
G0 - Financial Economics - - General

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  1. Huisman, Ronald, et al, 2001. "Tail-Index Estimates in Small Samples," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 208-16, April.
  2. Cotter, John, 2007. "Varying the VaR for unconditional and conditional environments," Journal of International Money and Finance, Elsevier, vol. 26(8), pages 1338-1354, December. [Downloadable!] (restricted)
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  3. Mittnik, Stefan & Paolella, Marc S. & Rachev, Svetlozar T., 2000. "Diagnosing and treating the fat tails in financial returns data," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 389-416, November. [Downloadable!] (restricted)
  4. Cotter, John, 2004. "Tail Behaviour of the Euro," MPRA Paper 3531, University Library of Munich, Germany, revised 2005. [Downloadable!]
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  5. Koedijk, Kees G & Kool, Clemens J M, 1992. "Tail Estimates of East European Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(1), pages 83-96, January.
  6. Danielsson, J. & Payne, R., 2002. "Real trading patterns and prices in spot foreign exchange markets," Journal of International Money and Finance, Elsevier, vol. 21(2), pages 203-222, April. [Downloadable!] (restricted)
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  7. Handa, Puneet & Schwartz, Robert A, 1996. " Limit Order Trading," Journal of Finance, American Finance Association, vol. 51(5), pages 1835-61, December. [Downloadable!] (restricted)
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