Market versus limit orders in an imperfectly competitive security

Luis Medrano

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: This paper analyzes the choice between limit and market orders in an imperfectly competitive noisy rational expectations economy. There is a unique insider, who takes into account the effect their trading has on prices. If the insider behaves as a price taker, she will choose market orders if her private information is very precise and she will choose limit orders otherwise. On the contrary, if the insider recognizes and exploits her ability to affect the market price, her optimal choice is to place limit orders whatever the precision of her private information.

Keywords: Market microstructure; limit orders; market orders; insider trading; market making; strategic behavior; rational expectations (search for similar items in EconPapers)
JEL-codes: D40 D82 G12 G14 (search for similar items in EconPapers)
Date: 1996-02
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:165

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