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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26567
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| Title: | Limit Orders and Volatility in a Hybrid Market: The Island ECN |
| Authors: | Hasbrouck, Joel
Saar, Gideon |
| Issue Date: | 26-Sep-2001 |
| Series/Report no.: | FIN-01-025 |
| Abstract: | This paper is an empirical analysis of trading activity on the Island
ECN, an electronic communications network for US equities, which is
organized as an electronic limit order book. The approach is
cross-sectional across firms. The goal is to characterize the
firm-specific determinants of Island activity, with particular emphasis
on the volatility of the firm’s stock. We find that Island’s
market share for a given firm is positively related to the overall level
of Nasdaq trading in the firm. Across a number of volatility proxies, we
find that higher volatility is associated with • a lower proportion
of limit orders in the incoming order flow • a higher probability
of limit order execution • shorter expected time to execution
• lower depth in the book. In addition, we find substantial use of
hidden limit orders (for which the submitter has opted to forgo display
of the order). Finally, over one quarter of the limit orders submitted
to Island are canceled (unexecuted) within two seconds or less. The
extensive use of these “fleeting” orders is at odds with the
view that limit order traders (like dealers) are patient providers of liquidity. |
| URI: | http://hdl.handle.net/2451/26567 |
| Appears in Collections: | Finance Working Papers
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