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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https://doi.org/10.1111/fima.12298
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Persistent link: https://EconPapers.repec.org/RePEc:bla:finmgt:v:49:y:2020:i:4:p:973-996
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