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...

This paper summarizes the responses to a questionnaire sent to equity traders through TraderForum of the Institutional Investor. The respondents manage in total a very significant percentage of equity assets under management in the United States. The focus of the questions was the extent of the...

Despite its power as a transactions network, scant attention has been given to incorporating an electronic call into a major market center such as the NYSE or Nasdaq. An electronic call clears the markets for all assets at predetermined points in time. By bunching many transactions together, a...

The paper analyzes the rationale for and profitably of limit order trading. Although limit orders are essential to the functioning of order driven markets, their use has received relatively little attention in the literature. Trading via limit order is, in fact, sub-optimal when transaction...

We use computer-based simulations of a stock market as a background environmentfor experimental tests of the integration of an order-driven trading systeminto a dealer/quote-driven market. Experimental subjects traded using a traditionaldealer quote screen (such as Nasdaq in the U.S. or the...

This paper focuses on an analytic approach that has received relatively sparse application in the economics/finance literature: simulation. Providing a laboratory-type environment, simulation can generate data that enable a com- plex environment to be assessed in a tractable manner that might...

Strengthening competition in the equity markets has long been a major public policy objective. This paper turns to another important determinant of market quality, one that has received relatively little attention in the public policy debates: order integration — the way in which orders are...

We present resiliency as a measure of liquidity, and assess its relationship to expected returns. We establish a covariance-based measure, RES, that captures opening period resiliency and, using it, find a significant non-resiliency premium that ranges from 33 to 57 basis points per month. The...

We consider a program that, by bringing additional liquidity to the equity markets, would benefit market participants, listed companies, an exchange, and the broader economy. Established by an issuer, managed by a third party broker-dealer intermediary, formally structured and maximally...

In just the past few years, the U.S. equity markets have experienced, among other things, the growth of electronic communications networks (ECNs), the breathtaking expansion of internet trading, and the NASD's acquisition of the American Stock Exchange. Around the world, we have also witnessed...