Journal Article

Empirical Analysis of Limit Order Markets

Burton Hollifield, Robert A. Miller and Patrik Sandås

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 71, issue 4, pages 1027-1063
Published in print October 2004 | ISSN: 0034-6527
Published online October 2004 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/0034-6527.00313
Empirical Analysis of Limit Order Markets

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We provide empirical restrictions of a model of optimal order submissions in a limit order market. A trader's optimal order submission depends on the trader's valuation for the asset and the trade-offs between order prices, execution probabilities and picking off risks. The optimal order submission strategy is a monotone function of a trader's valuation for the asset. We test the monotonicity restriction in a sample of order submissions and their realized outcomes from the Stockholm Stock Exchange. We do not reject the monotonicity restriction for buy orders or sell orders considered separately, but reject the monotonicity restriction for buy and sell orders considered jointly.

Keywords: G12; G14

Journal Article.  15006 words.  Illustrated.

Subjects: Economics

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