Market versus Limit Orders in an Imperfectly Competitive Security
Luís A. Medrano
This paper analyzes the choice between limit and market orders in an imperfectly competitive noisy rational expectations economy. There is a unique insider, who takes into account the effect their trading has on prices. If the insider behaves as a price taker, she will choose market orders if her private information is very precise and she will choose limit orders otherwise. On the contrary, if the insider recognizes and exploits her ability to affect the market price, her optimal choice is to place limit orders whatever the precision of her private information.
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