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The Order Strategy of Informed Traders in an Order-driven Market
Journal of Financial Studies
View Archive Info| Field | Value | |
| Title |
The Order Strategy of Informed Traders in an Order-driven Market |
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| Creator |
Lon-Ping Zu
Ming-Chang Wang Chau-Jung Kuo |
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| Description |
This paper presents a Nash equilibrium model in which risk-averse informed traders select the optimal combination of market and limit orders whilst considering the optimal price quotation of risk-averse uninformed traders in an electronic limit-order market. There may be partial leakage of fundamental information from the market orders of informed traders monitored by the market, whilst the limit orders of informed traders without information delivery will also present non-execution risk; however, informed traders may trade through a variety of order combinations in order to maximize their expected utility. For comprehensibility, we classify the order strategy of informed traders into three regimes: the submission of complete market orders, the submission of complete limit orders, and a combination of the submission of market and limit orders. Our main finding is that the critical values of the boundary at which the regimes switch is dependent upon the reservation value, the non-execution risk, the adverse selection risk of uninformed traders and the market perceptions relating to the arrival rate of market orders. Key words: Order strategy, Informed traders, Price formation. |
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| Publisher |
Journal of Financial Studies
財務金èžå¸åˆŠ |
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| Date |
2011-05-27
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| Type |
—
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| Format |
application/pdf
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| Identifier |
http://www.jfs.org.tw/index.php/jfs/article/view/2011131
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| Source |
Journal of Financial Studies; Vol 16, No 2 (2008); 127
財務金èžå¸åˆŠ; Vol 16, No 2 (2008); 127 |
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| Language |
—
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