Inefficient Market Depth

Autor: Jérôme Dugast
Přispěvatelé: Dauphine Recherches en Management (DRM), Université Paris Dauphine-PSL, Université Paris sciences et lettres (PSL)-Université Paris sciences et lettres (PSL)-Centre National de la Recherche Scientifique (CNRS)
Rok vydání: 2017
Předmět:
History
Market Depth
Polymers and Plastics
Comparative statics
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Welfare
JEL: D - Microeconomics/D.D8 - Information
Knowledge
and Uncertainty/D.D8.D83 - Search • Learning • Information and Knowledge • Communication • Belief • Unawareness
Industrial and Manufacturing Engineering
Market liquidity
Order Book
JEL: G - Financial Economics/G.G1 - General Financial Markets/G.G1.G14 - Information and Market Efficiency • Event Studies • Insider Trading
Microeconomics
Market depth
Gains from trade
Order (exchange)
Limit Order Execution Rate
Order book
Economics
[SHS.GESTION]Humanities and Social Sciences/Business administration
Limit (mathematics)
Business and International Management
JEL: F - International Economics/F.F1 - Trade/F.F1.F12 - Models of Trade with Imperfect Competition and Scale Economies • Fragmentation
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Zdroj: SSRN Electronic Journal.
ISSN: 1556-5068
DOI: 10.2139/ssrn.3075940
Popis: An investor who uses a limit order in order to trade, instead of a market order, saves the bid-ask spread but incurs an execution delay. Thus, the use of limit orders slows down the rate at which gains from trade are realized, and then has a negative effect on welfare. With comparative statics, I show how some liquidity measures co-vary with investors’ welfare. I find that market depth negatively co-varies with welfare while the limit order execution rate positively co-varies with welfare. Indeed, when market depth is due to orders inefficiently queuing in the book, the limit order execution rate is low. It suggests that limit order execution rate should be taken into consideration for assessing market quality.
Databáze: OpenAIRE
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