According to the empirical findings from evolution of liquidity, this study constructs an optimal order submission strategy model within which a mixture of market and limit orders can be submitted by both informed and uninformed traders. In the Stacklberg Game Model, informed traders with short-lived private information are regarded as leaders, and uniformed traders with learning behaviors are referred as followers. Our theoretical findings conclude as follows: Firstly, the order strategies of all traders can be characterized as coming under one of seven
regimes, pure market buy orders, a combination of market and limit buy orders, pure limit buy orders, a combination of limit buy and limit sell orders, pure limit sell orders, a combination of market and limit sell orders, and pure market sell orders. Traders will select their optimal
trading strategy according to the regime within which their liquidation value falls in. Parlour (1998) is a special case of this study. Secondly, the probability of submitting limit orders for uniformed traders increases when information traders get large profit from the private information. The extreme case is uniformed traders only submit limit orders. This result is consistent with Foucault (1999). Finally, the price interval will be much wider when limit orders are submitted by uniformed traders than by informed traders. The reasons are that uniformed traders have no private information and that they are high risk aversion.
Keywords : Market microstructure; Order submission strategy; Nash equilibrium; Order-driven market
학회소식
학회소식
[2010년 제 4차] Order Submission Dynamics in Order-driven Markets
작성자 : 관리자
조회수 : 1010
게시일 :
2010-12-09