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On the limit order behaviour of retail and non-retail investors

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  • Lo, Danny

Abstract

Motivated by the dichotomy in access to trading technology, this study examines the limit order behaviour of retail and non-retail investors (institutions and market-makers) in the Australian equity market. Fundamental differences are found in the trading behaviours of the two groups, consistent with non-retail investors having a relative speed advantage. Non-retail investors trade more via limit orders, are more aggressive with their limit order placement, exploit fleeting orders to search for latent liquidity and react more quickly to liquidity opportunities. We also find evidence that institutional investors are more responsive to non-execution risks and retail investors experiencing higher adverse selection costs at the hands of non-retail investors.

Suggested Citation

  • Lo, Danny, 2017. "On the limit order behaviour of retail and non-retail investors," Pacific-Basin Finance Journal, Elsevier, vol. 44(C), pages 1-12.
    • Handle: RePEc:eee:pacfin:v:44:y:2017:i:c:p:1-12
    DOI: 10.1016/j.pacfin.2017.04.009
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    References listed on IDEAS

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    Cited by:

    1. Lien, Donald & Hung, Pi-Hsia & Lo, Hsiang-Yu, 2022. "Order Choices: An Intraday Analysis of the Taiwan Stock Exchange," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    2. Jurich, Stephen N. & Mishra, Ajay Kumar & Parikh, Bhavik, 2020. "Indecisive algos: Do limit order revisions increase market load?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).

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    More about this item

    Keywords

    Limit orders; Order revisions; Non-execution risk; Adverse selection risk; Fleeting orders;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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