Acta Oeconomica Pragensia 2007, 15(4):32-38 | DOI: 10.18267/j.aop.71

Are Limit Orders Rational?

Martin Šmíd
RNDr. Martin Šmíd, Ph.D. - research fellow; Department of Econometrics, Institute of Information Theory and Automation of the Academy of Sciences of the Czech Republic, 182 08 Prague, Pod Vodárenskou věží 4, Czech Republic, you@martinsmid.eu

We examine whether it is rational to put limit orders in a limit order market. We find that limit orders are not needed and may be even disadvantageous given that the agent trades on-line. Further, we present a numerical study indicating that putting limit orders may be optimal given that the agent trades at discrete times but the benefit from using them in comparison with immediate buying and selling is negligible.

Keywords: market microstructure, limit order market, portfolio selection
JEL classification: C51, G10

Published: August 1, 2007  Show citation

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Šmíd, M. (2007). Are Limit Orders Rational? Acta Oeconomica Pragensia, 15(4), 32-38. doi: 10.18267/j.aop.71
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