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Limit Order Trading

  • Handa, Puneet
  • Schwartz, Robert A
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    The authors analyze the rationale for limit order trading. Use of limit orders involves two risks: (1) an adverse information event can trigger an undesirable execution, and (2) favorable news can result in a desirable execution not being obtained. On the other hand, a paucity of limit orders can result in accentuated short-term price fluctuations that compensate a limit order trader. The authors' empirical tests suggest that trading via limit orders dominates trading via market orders for market participants with relatively well-balanced portfolios, and that placing a network of buy and sell limit orders as a pure trading strategy is profitable. Copyright 1996 by American Finance Association.

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    Article provided by American Finance Association in its journal Journal of Finance.

    Volume (Year): 51 (1996)
    Issue (Month): 5 (December)
    Pages: 1835-61

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    Handle: RePEc:bla:jfinan:v:51:y:1996:i:5:p:1835-61
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