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Order aggressiveness and quantity: How are they determined in a limit order market?

Ingrid Lo and Stephen G. Sapp

Journal of International Financial Markets, Institutions and Money, 2010, vol. 20, issue 3, 213-237

Abstract: Dealers trading in a limit order market must choose both the order aggressiveness and the quantity for their orders. Since little research has considered how dealers make this trade-off, we empirically investigate how dealers jointly make these decisions in the foreign exchange market using a unique simultaneous equations model. Our model uses an ordered probit model to account for the discrete nature of order aggressiveness and a censored regression model to capture the quantity decision recognizing the clustering of orders at the smallest available quantity, $1 million. Using two currency pairs with very different trading characteristics, we find evidence of a trade-off between order aggressiveness and quantity. We also find a significant role being played by factors related to the levels of information asymmetry and liquidity in the dealers' choices of both the order aggressiveness and quantity.

Keywords: International; finance; Market; microstructure; Foreign; exchange; Limit; order; book (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (31)

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Working Paper: Order Aggressiveness and Quantity: How Are They Determined in a Limit Order Market? (2007) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:20:y:2010:i:3:p:213-237

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