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Journal of Finance Vol. 62 No. 4 2007

Working Orders in Limit Order Markets and Floor Exchanges

Kerry Back; Shmuel Baruch1,2,3,4

1 Cornell University · 2 Thales (Australia) · 3 Stony Brook University · 4 Texas A&M University

open access

Abstract

We analyze limit order markets and floor exchanges, assuming an informed trader and discretionary liquidity traders use market orders and can either submit block orders or work their demands as a series of small orders. By working their demands, large market order traders pool with small traders. We show that every equilibrium on a floor exchange must involve at least partial pooling. Moreover, there is always a fully pooling (worked order) equilibrium on a floor exchange that is equivalent to a block order equilibrium in a limit order market.

DOI
10.1111/j.1540-6261.2007.01252.x
Volume
62
Issue
4
Pages
1589-1621
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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