Multiple duration analyses of dynamic limit order placement strategies and aggressiveness in a low-latency market environment

Abstract

This study examines dynamic order placement strategies in a low-latency environment together with limit orders' aggressiveness by a new approach which utilises survival analysis with a multiple-spell duration model. Two samples are considered, including the period immediately followed Australian Securities Exchange (ASX)'s migration to Integrated Trading System (ITS) and the period subsequent to the launch of ASX Trade. We find the evidence supporting both the 'cost of immediacy hypothesis' and the 'chasing hypothesis' as in Hasbrouck and Saar (2009). Furthermore, several distinctions in the results are found between the samples of ITS period and ASX Trade period as well as between the samples of small-cap stocks and large-cap stocks. The findings of this study are beneficial not only for high-frequency traders in forming dynamic order placement strategies in a low-latency stock market environment, but also for market regulators in helping their attempt to improve regulations for stock exchanges. Show more