Discriminatory Limit Order Books, Uniform Price Clearing and Optimality

Lawrence R. Glosten
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Lawrence R. Glosten: Columbia Business School, USA

Chapter 1 in Advances in Quantitative Analysis of Finance and Accounting:Essays in Microstructure in Honor of David K Whitcomb, 2006, pp 3-17 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThe paper provides new results on the optimality of a centralized limit order book. In an environment in which traders optimally choose their trade quantity in response to the terms of trade they face, the analysis shows that a centralized limit order book is optimal in the following sense: the equilibrium in a limit order book corresponds to the welfare optimum for some set of welfare weights. The paper also provides a new analysis of a uniform price limit order book with endogenous trade.

Keywords: Liquidity; Volatility; Limit Orders; Microstructure; Trading Structure (search for similar items in EconPapers)
Date: 2006
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