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The Speed Of Limit Order Execution In The Spanish Stock Exchange

  • Luana Gava

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    The objective of this work is to study empirically the factors influencing the execution time in the Spanish Stock Exchange. Our dataset includes the orders and transactions of the assets belonging to IBEX 35 in the period between July and September 2000. We divide the assets into three sub samples according to their trading activity, and we use an econometric model based on survival analysis to analyze the effect of variables such as the relative inside spread, price aggressiveness, asset volatility and depth. We find that limit orders priced at the quotes or within the quotes have a shorter expected time of execution. The same happens when the asset is more volatile and active. Time of execution is shorter at the beginning and at the end of the trading session depending on the group of the assets considered, and it is longer when the inside bid--ask spread is larger. If the trader takes into account the type of the last order introduced before the order placement we can observe that if the previous order was a market order on the opposite (same) side of the book then the expected time of execution of the new limit order is shorter (longer), while if it was a limit order on the same (opposite) side of the book then it is longer (shorter). Finally, we study the effect of the explanatory variables on the expected time of execution over the different periods of the trading session.

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    File URL: http://docubib.uc3m.es/WORKINGPAPERS/WB/wb057718.pdf
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    Paper provided by Universidad Carlos III, Departamento de Economía de la Empresa in its series Business Economics Working Papers with number wb057718.

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    Date of creation: Dec 2005
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    Handle: RePEc:cte:wbrepe:wb057718
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    1. Niemeyer, Jonas & Sandås, Patrik, 1995. "An Empirical Analysis of the Trading Structure at the Stockholm Stock Exchange," SSE/EFI Working Paper Series in Economics and Finance 44, Stockholm School of Economics.
    2. Ranaldo, Angelo, 2004. "Order aggressiveness in limit order book markets," Journal of Financial Markets, Elsevier, vol. 7(1), pages 53-74, January.
    3. 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.
    4. 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.
    5. Griffiths, Mark D. & Smith, Brian F. & Turnbull, D. Alasdair S. & White, Robert W., 2000. "The costs and determinants of order aggressiveness," Journal of Financial Economics, Elsevier, vol. 56(1), pages 65-88, April.
    6. Andrew W. Lo & A. Craig MacKinlay & June Zhang, 1997. "Econometric Models of Limit-Order Executions," NBER Working Papers 6257, National Bureau of Economic Research, Inc.
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    8. FOUCAULT, Thierry & KADAN, Ohad & KANDEL, Eugene, 2001. "Limit order book as a market for liquidity," Les Cahiers de Recherche 728, HEC Paris.
    9. Hollifield, Burton & Miller, Robert & Sandås, Patrik, 2001. "Empirical Analysis of Limit Order Markets," CEPR Discussion Papers 2843, C.E.P.R. Discussion Papers.
    10. 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).
    11. Gonzalo Rubio & Mikel Tapia, 1996. "Adverse selection, volume and transactions around dividend announcements in a continuous auction system," European Financial Management, European Financial Management Association, vol. 2(1), pages 39-67.
    12. Madhavan, Ananth, 1992. " Trading Mechanisms in Securities Markets," Journal of Finance, American Finance Association, vol. 47(2), pages 607-41, June.
    13. Foucault, Thierry, 1999. "Order flow composition and trading costs in a dynamic limit order market1," Journal of Financial Markets, Elsevier, vol. 2(2), pages 99-134, May.
    14. Handa, Puneet & Schwartz, Robert A, 1996. " Limit Order Trading," Journal of Finance, American Finance Association, vol. 51(5), pages 1835-61, December.
    15. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
    16. Alessandro Beber & Cecilia Caglio, 2005. "Order Submission Strategies and Information: Empirical Evidence from the NYSE," FAME Research Paper Series rp146, International Center for Financial Asset Management and Engineering.
    17. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
    18. Parlour, Christine A, 1998. "Price Dynamics in Limit Order Markets," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 789-816.
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