Publication Type

Journal Article

Version

publishedVersion

Publication Date

6-2026

Abstract

Limit orders submitted around the same time are subject to random latencies and will be queued accordingly. In equilibrium, end-of-queue limit orders always lose money—the liquidity supply appears excessive. The model generates empirical predictions regarding such “overshooting” liquidity: (i) new limit orders appear fleeting—clustered submissions are followed by immediate cancellations, (ii) the resulting cancel-to-add count ratio reflects adverse selection, and (iii) the cancel-to-add size ratio measures high-frequency market-making activity. Welfare can be hurt by the overshooting liquidity if it induces excessive speculation. Overall, the model contributes to a more comprehensive understanding and better utilization of order book data.

Keywords

limit order book, depth, latency, time priority, market fragmentation

Discipline

Finance and Financial Management

Research Areas

Finance

Areas of Excellence

Digital transformation

Publication

Management Science

Volume

72

Issue

6

First Page

4760

Last Page

4779

ISSN

0025-1909

Identifier

10.1287/mnsc.2023.03371

Publisher

Institute for Operations Research and Management Sciences

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Additional URL

https://doi.org/10.1287/mnsc.2023.03371

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