A Competing Risk Analysis of Executions and Cancellations in a Limit Order Market

Bidisha Chakrabarty (), Zhaohui Han (), Konstantin Tyurin () and Xiaoyong Zheng ()
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Bidisha Chakrabarty: Saint Louis University
Zhaohui Han: Financial Engineering Group, ITG Inc.
Konstantin Tyurin: Indiana University Bloomington

No 2006-015, CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

Abstract: The competing risks technique is applied to the analysis of times to execution and cancellation of limit orders submitted on an electronic trading platform. Time-to-execution is found to be more sensitive to the limit price variation than time-to-cancellation, even though it is less sensitive to the limit order size. More importantly, investors who aim to reduce the expected time-to-execution for their limit orders without inducing any significant increase in the risk of subsequent cancellation should submit their orders when the market depth is smaller on the side of their orders or when the market depth is greater on the opposite side of their orders. We also provide a new diagnostic plots method for evaluating the goodness-of-fit of different competing risks models.

Keywords: Market microstructure; limit order; competing risks; hazard rate; frailty (search for similar items in EconPapers)
JEL-codes: G14 G23 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2006-10
New Economics Papers: this item is included in nep-fmk and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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