Depths and spreads in futures markets: Relationship with order execution, submission, and cancellation
RIS ID
133064
Abstract
This paper examines the relationship between limit order submissions and liquidity. We find that there is a negative relationship between the limit order arrival rate and the depth at the best quotes (limit order queue length) and a positive relationship between submissions and bid-ask spreads. This is consistent with queuing theory, which predicts that an increase in the limit order arrival rate increases the queue length and the time to execution of a limit order. Consequently, limit order traders cover the increase in costs and risks associated with the increase in the time to execution of limit orders by increasing bid-ask spread.
Publication Details
Frino, A., Kovacevic, O. & Mollica, V. (2019). Depths and spreads in futures markets: Relationship with order execution, submission, and cancellation. Journal of Futures Markets, 39 (5), 590-599.