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Fast and slow cancellations and trader behavior

Thomas H. McInish, Olena Nikolsko‐Rzhevska, Alex Nikolsko‐Rzhevskyy and Irina Panovska
Authors registered in the RePEc Author Service: Alex Nikolsko-Rzhevskyy

Financial Management, 2020, vol. 49, issue 4, 973-996

Abstract: We investigate how short‐lived liquidity supply due to order cancellations affects the order‐placement behavior of slow traders. When order cancellations increase, slow traders submit fewer and less aggressive orders. Both short‐ and long‐lived liquidity supply have positive effects on the market overall, reducing spreads and increasing depth. We conclude that it is not necessary to require limit orders to have a minimum lifespan. We develop econometric and machine‐learning frameworks that allow traders to predict whether a quote is likely to have a short or long life, increasing the ability of slow traders to respond strategically to changing order flow.

Date: 2020
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Citations: View citations in EconPapers (2)

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https://doi.org/10.1111/fima.12298

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