Inefficient Market Depth
Dugast, Jérôme (2018), Inefficient Market Depth, 2nd SAFE Market Microstructure Conference, 2018-08, Frankfurt, Germany
TypeCommunication / Conférence
Titre du colloque2nd SAFE Market Microstructure Conference
Date du colloque2018-08
Ville du colloqueFrankfurt
Pays du colloqueGermany
MétadonnéesAfficher la notice complète
Dauphine Recherches en Management [DRM]
Résumé (EN)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.
Mots-clésOrder Book; Limit Order Execution Rate; Welfare
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