A dynamic limit order market with diversity in trading horizons
- This paper considers a trading game in which sequentially arriving liquidity traders either opt for a market order or for a limit order. One class of traders is considered to have an extended trading horizon, implying their impatience is linked to their trading orientation. More specifically, sellers are considered to have a trading horizon of two periods, whereas buyers only have a single-period trading scope (the extended buyer-horizon case is completely symmetric). Clearly, as the life span of their submitted limit orders is longer, this setting implies sellers are granted a natural advantage in supplying liquidity. This benefit is hampered, however, by the direct competition arising between consecutively arriving sellers. Closed-form characterizations for the order submission strategies are obtained when solving for the equilibrium of this dynamic game. These allow to examine how these forces affect traders´ order placement decisions. Further, the analysis yields insight into the dynamic process of price formation and into the market clearing process of a non-intermediated, order driven market.
Author: | Mark Van Achter |
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URN: | urn:nbn:de:hebis:30-62250 |
Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2008,46 |
Series (Serial Number): | CFS working paper series (2008, 46) |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2008 |
Year of first Publication: | 2008 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2009/01/29 |
Tag: | Limit Order Market; Market Microstructure; Order Flow; Order Placement Strategy |
HeBIS-PPN: | 210193859 |
Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Licence (German): | Deutsches Urheberrecht |