Limit Order Trading

  • Author(s): PUNEET HANDA, ROBERT A. SCHWARTZ
  • Published: Apr 30, 2012
  • Pages: 1835-1861
  • DOI: 10.1111/j.1540-6261.1996.tb05228.x

ABSTRACT

We analyze the rationale for limit order trading. Use of limit orders involves two risks: 1) an adverse information event can trigger an undesirable execution, and 2) favorable news can result in a desirable execution not being obtained. On the other hand, a paucity of limit orders can result in accentuated short‐term price fluctuations that compensate a limit order trader. Our empirical tests suggest that trading via limit orders dominates trading via market orders for market participants with relatively well balanced portfolios, and that placing a network of buy and sell limit orders as a pure trading strategy is profitable.

Jump to menu

Main Navigation

Search the Site / Journal

Search Keywords

Search Tips

Members' Login

Credentials

Members' Options

Site Footer

View Mobile Version