A market-clearing role for inefficiency on a limit order book

Journal of Financial Economics

Volumn 91, Issue 1, 2009, Pages 102-117

  Large, Jeremy ^a  

^a UNIVERSITY OF OXFORD   (United Kingdom)

Author keywords

Bid ask spread; Limit order book; Market depths; Stationary equilibrium; Stochastic sequential game

Indexed keywords

EID: 58149127306     PISSN: 0304405X     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jfineco.2007.12.004     Document Type: Article

References (41)

1. Ahn H., Cao C., and Choe H. Tick size, spread and volume. Journal of Financial Intermediation 5 (1996) 2-22
2. Ahn H., Cao C., and Choe H. Decimalization and competition among stock markets: evidence from the Toronto stock exchange cross-listed securities. Journal of Financial Markets 1 (1998) 51-87
3. Anshuman V., and Kalay A. Market making with discrete prices. Review of Financial Studies 11 1 (1998) 81-109
4. Bernhardt D., and Hughson E. Discrete pricing and the design of dealership markets. Journal of Economic Theory 71 (1996) 148-182
5. Bessembinder H. Tick size, spreads, and liquidity: an analysis of Nasdaq securities trading near ten dollars. Journal of Financial Intermediation 9 (2000) 213-239
6. Biais B., Hillion P., and Spatt C. An empirical analysis of the limit order book and the order flow in the Paris Bourse. Journal of Finance 50 (1995) 1655-1689
7. Brockman P., and Chung D. An analysis of depth behavior in an electronic order-driven environment. Journal of Banking and Finance 51 (1996) 1835-1861
8. Chakravarty S., and Holden K. An integrated model of market and limit orders. Journal of Financial Intermediation 4 (1995) 213-241
9. Cohen K., Maier S., Schwartz R., and Whitcomb D. Transaction costs, order placement strategy, and existence of the bid-ask spread. Journal of Political Economy 89 (1981) 287-305
10. Coppejans, M., Domowitz, I., Madhavan, A., 2004. Resiliency in an automated auction. Working paper, Duke University.
11. Cordella T., and Foucault T. Minimum price variation, time priority and quote dynamics. Journal of Financial Intermediation 8 (1999) 141-173
12. Danielsson, J., Payne, R., 2002. Liquidity determination in an order driven market. Working paper, London School of Economics.
13. Field, J., Large, J., 2008. Pro-rata matching and the order book dynamics of fixed income futures. Working paper, University of Oxford.
14. Foucault T. Order flow composition and trading costs in a dynamic limit order market. Journal of Financial Markets 2 (1999) 99-134
15. Foucault T., Kadan O., and Kandel E. Limit order book as a market for liquidity. Review of Financial Studies 18 (2005) 1171-1217
16. Glosten L.R., and Milgrom P.R. Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics 14 (1985) 71-100
17. Goettler, R., Parlour, C., Rajan, U., 2004. Information acquisition in a limit order market. Working paper, Carnegie Mellon University.
18. Goettler R., Parlour C., and Rajan U. Equilibrium in a dynamic limit order market. Journal of Finance 60 (2005) 2149-2192
19. Goldstein M., and Kavajecz K. Eighths, sixteenths, and market depth: changes in tick size and liquidity provision on the NYSE. Journal of Financial Economics 56 (2000) 125-149
20. Handa P., and Schwartz R. Limit order trading. Journal of Finance 51 (1996) 1835-1861
21. Harris L. Minimum price variations, discrete bid-ask spreads, and quotation sizes. Review of Financial Studies 7 (1994) 149-178
22. Hendershott T., and Jones C. Island goes dark: transparency, fragmentation, and regulation. Review of Financial Studies 18 (2005) 743-793
23. Hollifield B., Miller R.A., and Sandås P. Empirical analysis of limit order markets. Review of Economic Studies 71 (2004) 1027-1063
24. Jones C., and Lipson M. Sixteenths: direct evidence on institutional execution costs. Journal of Financial Economics 59 (2001) 253-278
25. Kadan O. So who gains from a small tick size?. Journal of Financial Intermediation 15 (2006) 32-66
26. Kavajecz K. A specialist's quoted depth and the limit order book. Journal of Finance 54 (1999) 747-771
27. Kyle A. Continuous auctions and insider trading. Econometrica 53 (1985) 1315-1336
28. Large J. Measuring the resiliency of an electronic limit order book. Journal of Financial Markets 10 (2007) 1-25
29. Large, J., Norman, T., 2008. Ergodic equilibria in stochastic sequential games. Working paper, University of Oxford.
30. Lee C., Mucklow B., and Ready M. Spreads, depths and the impact of earnings information: an intraday analysis. Review of Financial Studies 6 (1993) 345-374
31. Ohta, W., 2006. Quote competition in limit order markets. Working paper, University of Tokyo.
32. Parlour C. Price dynamics in limit order markets. Review of Financial Studies 11 (1998) 789-816
33. Porter D., and Weaver D. Decimalization and market quality. Financial Management 26 (1997) 5-26
34. Portniaguina E., Bernhardt D., and Hughson E. Hybrid markets, tick size and investor trading costs. Journal of Financial Markets 9 (2006) 433-447
35. Rieder U. Equilibrium plans in non-zero-sum Markov games. In: Moeschlin O., and Pallaschke D. (Eds). Game Theory and Related Topics (1979), North-Holland, Amsterdam 91-101
36. Ronen T., and Weaver D. Teenies' anyone?. Journal of Financial Markets 4 (2001) 231-260
37. Rosu, I., 2006. A dynamic model of the limit order book. Working paper, University of Chicago Graduate School of Business.
38. Seppi D. Liquidity provision with limit orders and strategic specialists. Review of Financial Studies 10 (1997) 103-150
39. Tweedie R.L. Criteria for classifying general Markov chains. Advances in Applied Probability 8 (1976) 737-771
40. Tweedie R.L. The existence of moments for stationary Markov chains. Journal of Applied Probability 20 (1983) 191-196
41. Van Ness B., Van Ness R., and Pruitt S. The impact of the reduction in tick increments in major U.S. markets on spreads, depth, and volatility. Review of Quantitative Finance and Accounting 15 (2000) 153-167