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Queuing Uncertainty of Limit Orders

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  • Bart Zhou Yueshen

    (Lee Kong Chian School of Business, Singapore Management University, Singapore 178899)

Abstract

Limit orders submitted around the same time are subject to random latencies and will be queued accordingly. In equilibrium, end-of-queue limit orders always lose money—the liquidity supply appears excessive. The model generates empirical predictions regarding such “overshooting” liquidity: (i) new limit orders appear fleeting—clustered submissions are followed by immediate cancellations, (ii) the resulting cancel-to-add count ratio reflects adverse selection, and (iii) the cancel-to-add size ratio measures high-frequency market-making activity. Welfare can be hurt by the overshooting liquidity if it induces excessive speculation. Overall, the model contributes to a more comprehensive understanding and better utilization of order book data.

Suggested Citation

  • Bart Zhou Yueshen, 2026. "Queuing Uncertainty of Limit Orders," Management Science, INFORMS, vol. 72(6), pages 4760-4779, June.
    • Handle: RePEc:inm:ormnsc:v:72:y:2026:i:6:p:4760-4779
    DOI: 10.1287/mnsc.2023.03371
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