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Order Placement Strategies In A Pure Limit Order Book Market

  • Charles Cao
  • Oliver Hansch
  • Xiaoxin Wang

Using order book information from the Australian Stock Exchange (ASX), we examine whether (and to what extent) the order book affects investors' order placement strategies. We find that the top of the book always affects order submissions, cancellations, and amendments, and the rest of the book mostly affects order cancellations and amendments. The previously documented order submission aggressiveness, given a crowded first step of the book, persists to other price steps and is found in order amendments and cancellations along the book. Finally, investors tend to fill in the large price gaps in the book by submitting or amending orders. (c) 2008 The Southern Finance Association and the Southwestern Finance Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1475-6803.2008.00234.x
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Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

Volume (Year): 31 (2008)
Issue (Month): 2 ()
Pages: 113-140

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Handle: RePEc:bla:jfnres:v:31:y:2008:i:2:p:113-140
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  1. Cohen, Kalman J, et al, 1981. "Transaction Costs, Order Placement Strategy, and Existence of the Bid-Ask Spread," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 287-305, April.
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  7. Anthony D. Hall & Nikolaus Hautsch, 2004. "A Continuous-Time Measurement of the Buy-Sell Pressure in a Limit Order Book Market," FRU Working Papers 2004/03, University of Copenhagen. Department of Economics. Finance Research Unit.
  8. David Michayluk & Gary C. Sanger, 2006. "Day-End Effect On The Paris Bourse," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 29(1), pages 131-146.
  9. PASCUAL, Roberto & VEREDAS, David, 2004. "What pieces of limit order book information are informative ?," CORE Discussion Papers 2004033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Bloomfield, Robert & O'Hara, Maureen & Saar, Gideon, 2005. "The "make or take" decision in an electronic market: Evidence on the evolution of liquidity," Journal of Financial Economics, Elsevier, vol. 75(1), pages 165-199, January.
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  16. Biais, Bruno & Hillion, Pierre & Spatt, Chester, 1995. " An Empirical Analysis of the Limit Order Book and the Order Flow in the Paris Bourse," Journal of Finance, American Finance Association, vol. 50(5), pages 1655-89, December.
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