Limit Order Trading Behavior and Individual Investor Performance

Purpose – The purpose of this paper is to explore some commonly held beliefs about individuals investing in over-the-counter (OTC) stocks (those traded on Over-the-counter Bulletin Board (OTCBB) and Pink Sheets), a fairly pervasive activity. The authors frame the analysis within the context of direct gambling, aspirational preferences in behavioral portfolios, and private information. Design/methodology/approach – Contrary to popular perceptions, the modeling of the deliberate act of buying OTC stocks at a discount brokerage house finds that unlike the typical lottery buyers/gamblers, OTC investors are older, wealthier, more experienced at investing, and display greater portfolio diversification than their non-OTC investing counterparts. Findings – Behavioral portfolio investors (Shefrin and Statman, 2000) invest their money in layers, each of which corresponds to an aspiration or goal. Consistent with sensation seeking and aspirations in behavioral portfolios, OTC investors also display higher trading activity. Penny stocks seem to have different characteristics and trading behavior than other OTC stocks priced over one dollar. Irrespective of the price of OTC stocks, the authors find little evidence of information content in OTC trades. Originality/value – The paper provides insight into individual investor decision making by empirically exploring the demographic and portfolio characteristics of individuals trading in OTC stocks.

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Competitive algorithms for VWAP and limit order trading

Proceedings of the 5th ACM conference on Electronic commerce - EC '04 ◽

10.1145/988772.988801 ◽

2004 ◽

Cited By ~ 21

Author(s):

Sham M. Kakade ◽

Michael Kearns ◽

Yishay Mansour ◽

Luis E. Ortiz

Keyword(s):

Limit Order ◽

Limit Order Trading ◽

Competitive Algorithms

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Spoofing the Limit Order Book: A Strategic Agent-Based Analysis

Games ◽

10.3390/g12020046 ◽

2021 ◽

Vol 12 (2) ◽

pp. 46

Author(s):

Xintong Wang ◽

Christopher Hoang ◽

Yevgeniy Vorobeychik ◽

Michael P. Wellman

Keyword(s):

Limit Order Book ◽

Trading Strategies ◽

Order Book ◽

Market Manipulation ◽

Trading Behavior ◽

Limit Order ◽

Agent Based ◽

Total Surplus ◽

Private Values ◽

Belief Learning

We present an agent-based model of manipulating prices in financial markets through spoofing: submitting spurious orders to mislead traders who learn from the order book. Our model captures a complex market environment for a single security, whose common value is given by a dynamic fundamental time series. Agents trade through a limit-order book, based on their private values and noisy observations of the fundamental. We consider background agents following two types of trading strategies: the non-spoofable zero intelligence (ZI) that ignores the order book and the manipulable heuristic belief learning (HBL) that exploits the order book to predict price outcomes. We conduct empirical game-theoretic analysis upon simulated agent payoffs across parametrically different environments and measure the effect of spoofing on market performance in approximate strategic equilibria. We demonstrate that HBL traders can benefit price discovery and social welfare, but their existence in equilibrium renders a market vulnerable to manipulation: simple spoofing strategies can effectively mislead traders, distort prices and reduce total surplus. Based on this model, we propose to mitigate spoofing from two aspects: (1) mechanism design to disincentivize manipulation; and (2) trading strategy variations to improve the robustness of learning from market information. We evaluate the proposed approaches, taking into account potential strategic responses of agents, and characterize the conditions under which these approaches may deter manipulation and benefit market welfare. Our model provides a way to quantify the effect of spoofing on trading behavior and market efficiency, and thus it can help to evaluate the effectiveness of various market designs and trading strategies in mitigating an important form of market manipulation.

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