IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Workup

  • Romans Pancs

    ()

Registered author(s):

    In pure limit-order markets, the use of large orders is discouraged by potential front-runners. This problem can be mitigated by using expandable orders or iceberg orders, or by splitting a large order into smaller ones. An expandable order gives a trader an option to sequentially expand the size of his trade while holding the price fixed. An iceberg order enables a trader to commit to a maximal trade size at some price, without fully revealing that size to other traders. This paper provides a theoretical model of expandable orders and the accompanying quantity negotiation, called (also by practitioners) the “workup”. The workup is ubiquitous in the U.S. and Canadian bond markets and in over-the-counter markets. The model suggests that even when iceberg orders are available, traders will still use the workup if splitting an order is prohibitively costly, front-running is a threat, and the exchange lacks trust. Copyright Springer-Verlag Berlin Heidelberg 2014

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://hdl.handle.net/10.1007/s10058-013-0153-y
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Springer & Society for Economic Design in its journal Review of Economic Design.

    Volume (Year): 18 (2014)
    Issue (Month): 1 (March)
    Pages: 37-71

    as
    in new window

    Handle: RePEc:spr:reecde:v:18:y:2014:i:1:p:37-71
    DOI: 10.1007/s10058-013-0153-y
    Contact details of provider: Web page: http://www.springer.com

    Web page: https://sites.google.com/site/societyforeconomicdesign/

    Order Information: Web: http://www.springer.com/economics/journal/10058

    References listed on IDEAS
    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.:

    as in new window
    1. Kremer, Ilan & Nyborg, Kjell G, 2004. "Underpricing and Market Power in Uniform Price Auctions," CEPR Discussion Papers 4363, C.E.P.R. Discussion Papers.
    2. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, March.
    3. Huang, Roger D. & Cai, Jun & Wang, Xiaozu, 2002. "Information-Based Trading in the Treasury Note Interdealer Broker Market," Journal of Financial Intermediation, Elsevier, vol. 11(3), pages 269-296, July.
    4. Jerry R. Green & Jean-Jacques Laffont, 1986. "Partially Verifiable Information and Mechanism Design," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 447-456.
    5. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers 11, Stanford - Institute for Thoretical Economics.
    6. Robert Evans, 1989. "Sequential Bargaining with Correlated Values," Review of Economic Studies, Oxford University Press, vol. 56(4), pages 499-510.
    7. Moinas, Sophie, 2010. "Hidden Limit Orders and Liquidity in Order Driven Markets," IDEI Working Papers 600, Institut d'Économie Industrielle (IDEI), Toulouse.
    8. Bernhardt, Dan & Taub, Bart, 2008. "Front-running dynamics," Journal of Economic Theory, Elsevier, vol. 138(1), pages 288-296, January.
    9. Markus K. Brunnermeier & Lasse Heje Pederson, 2003. "Predatory trading," LSE Research Online Documents on Economics 24829, London School of Economics and Political Science, LSE Library.
    10. Darrell Duffie & Bruno Strulovici, 2012. "Capital Mobility and Asset Pricing," Econometrica, Econometric Society, vol. 80(6), pages 2469-2509, November.
    11. Dimitri Vayanos, 2001. "Strategic trading in a dynamic noisy market," LSE Research Online Documents on Economics 447, London School of Economics and Political Science, LSE Library.
    12. Garbade, Kenneth D, 1978. "The Effect of Interdealer Brokerage on the Transactional Characteristics of Dealer Markets," The Journal of Business, University of Chicago Press, vol. 51(3), pages 477-98, July.
    13. Rochet, J.C. & Vila, J.L., 1993. "Insider Trading Without Normality," Papers 93.b, Toulouse - GREMAQ.
    14. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
    15. Sabrina Buti & Barbara Rindi, 2011. "Undisclosed Orders and Optimal Submission Strategies in a Dynamic Limit Order Market," Working Papers 389, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    16. Burdett, Kenneth & O'hara, Maureen, 1987. "Building blocks : An introduction to block trading," Journal of Banking & Finance, Elsevier, vol. 11(2), pages 193-212, June.
    17. Robert Wilson, 1979. "Auctions of Shares," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 675-689.
    18. Vincent, Daniel R., 1989. "Bargaining with common values," Journal of Economic Theory, Elsevier, vol. 48(1), pages 47-62, June.
    19. Admati, Anat R & Pfleiderer, Paul, 1990. "Direct and Indirect Sale of Information," Econometrica, Econometric Society, vol. 58(4), pages 901-28, July.
    20. Aitken, Michael J. & Berkman, Henk & Mak, Derek, 2001. "The use of undisclosed limit orders on the Australian Stock Exchange," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1589-1603, August.
    21. Fishman, Michael J & Longstaff, Francis A, 1992. " Dual Trading in Futures Markets," Journal of Finance, American Finance Association, vol. 47(2), pages 643-71, June.
    22. Bruce Mizrach & Christopher J. Neely, 2006. "The transition to electronic communications networks in the secondary treasury market," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 527-542.
    23. Admati, Anat R & Pfleiderer, Paul, 1991. "Sunshine Trading and Financial Market Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 443-81.
    24. Christopher Harris & John Vickers, 1985. "Perfect Equilibrium in a Model of a Race," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 193-209.
    25. Dilip Abreu & Faruk Gul, 2000. "Bargaining and Reputation," Econometrica, Econometric Society, vol. 68(1), pages 85-118, January.
    26. Anand, Amber & Weaver, Daniel G., 2004. "Can order exposure be mandated?," Journal of Financial Markets, Elsevier, vol. 7(4), pages 405-426, October.
    27. Boni, Leslie & Leach, Chris, 2004. "Expandable limit order markets," Journal of Financial Markets, Elsevier, vol. 7(2), pages 145-185, February.
    28. Kastl, Jakub, 2012. "On the properties of equilibria in private value divisible good auctions with constrained bidding," Journal of Mathematical Economics, Elsevier, vol. 48(6), pages 339-352.
    29. Esser, Angelika & Monch, Burkart, 2007. "The navigation of an iceberg: The optimal use of hidden orders," Finance Research Letters, Elsevier, vol. 4(2), pages 68-81, June.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:spr:reecde:v:18:y:2014:i:1:p:37-71. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)

    or (Rebekah McClure)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.