Pro-rata matching and one-tick futures markets
- We find and describe four futures markets where the bid-ask spread is bid down to the fixed price tick size practically all the time, and which match counterparties using a pro-rata rule. These four markets´ offered depths at the quotes on average exceed mean market order size by two orders of magnitude, and their order cancellation rates (the probability of any given offered lot being cancelled) are significantly over 96 per cent. We develop a simple theoretical model to ex- plain these facts, where strategic complementarities in the choice of limit order size cause traders to risk overtrading by submitting over-sized limit orders, most of which they expect to cancel.
| Author: | Jonathan Field, Jeremy Large |
|---|---|
| URN: | urn:nbn:de:hebis:30-62190 |
| Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2008,40 |
| Series (Serial Number): | CFS working paper series (2008, 40) |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2008 |
| Year of first Publication: | 2008 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2009/01/29 |
| Tag: | Bid-Ask Spread; Depths; Limit Order Book; Pro-Rata; Tick Size |
| HeBIS-PPN: | 210174811 |
| Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Licence (German): |  Deutsches Urheberrecht |
