Undisclosed orders and optimal submission strategies in a limit order market

• 成果类型: Article
• 署名作者: Buti, Sabrina; Rindi, Barbara
• 署名单位: University of Toronto; Bocconi University; Bocconi University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2013.04.002
• 发表日期: 2013
• 页码: 797-812
• 关键词: Reserve orders; Limit order book; liquidity; welfare

摘要

Reserve orders enable traders to hide a portion of their orders and now appear in most electronic limit order markets. This paper outlines a theory to determine an optimal submission strategy in a limit order book, in which traders choose among limit, market, and reserve orders and simultaneously set price, quantity, and exposure. We show that reserve orders help traders compete for the provision of liquidity and reduce the friction generated by exposure costs. Therefore, total gains from trade increase. Large traders always benefit from reserve orders, whereas small traders benefit only when the tick size is large. (c) 2013 Elsevier B.V. All rights reserved.