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The tail risks of FX return distributions : a comparison of the returns associated with limit orders and market orders

Author

Listed:
  • John Cotter
  • Kevin Dowd

Abstract

This paper measures and compares the tail risks of limit and market orders using Extreme Value Theory. The analysis examines realised tail outcomes using the Dealing 2000-2 electronic broking system based on completed transactions rather than the more common analysis of indicative quotes. In general, limit and market orders exhibit broadly similar tail behaviour, but limit orders have significantly heavier tails and larger tail quantiles than market orders.

Suggested Citation

  • John Cotter & Kevin Dowd, 2007. "The tail risks of FX return distributions : a comparison of the returns associated with limit orders and market orders," Centre for Financial Markets Working Papers 10197/1151, Research Repository, University College Dublin.
    • Handle: RePEc:rru:cfmwps:10197/1151
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    File URL: http://hdl.handle.net/10197/1151
    File Function: First version, 2007
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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