Economic Modeling White Papers
An Empirical Analysis of Limit Order Markets
Overview This paper analyzes order placement strategies in a limit order market. Traders submitting market or limit orders to the limit order book trade off the order price, the execution probability, and the winner’s curse risk associated with different feasible order choices. Their optimal order strategy is characterized by a monotone function which maps the liquidity demand of the investors into their subjective execution probabilities. We provide conditions for the existence of a Markov perfect equilibria to the model whose outcomes satisfy a mixing condition. The primitives of this model are the time varying shock that is common to all valuations, as well as the probability distribution of private valuations, assumed to be a time invariant, independently and identically distributed random variable.
| Publisher | University of Pennsylvania | File Format | PDF, requires Acrobat Rdr 5 |
|---|---|---|---|
| Date Published | November 1999 | Downloads | 1 |
| Format | White Papers | ||
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