行政院國家科學委員會專題研究計畫 成果報告
市價單與限價單日內績效之研究：台灣證券交易所之實證研 究
計畫類別： 個別型計畫
計畫編號： NSC92-2416-H-011-007-
執行期間： 92 年 08 月 01 日至 93 年 07 月 31 日 執行單位： 國立臺灣科技大學企業管理系
計畫主持人： 黃彥聖 共同主持人： 梁育立
報告類型： 精簡報告
報告附件： 出席國際會議研究心得報告及發表論文 處理方式： 本計畫可公開查詢
中 華 民 國 93 年 8 月 2 日
市價單與限價單日內績效之研究 台灣證券交易所之實證研究
This paper examines the intraday performance of limit orders relative to market orders using transaction data from the Taiwan Stock Exchange over the first three months of 1999. Our research is pertinent to Handa and Schwartz (1996) in assessing the performance of limit orders. However, Handa and Schwartz (1996) examine the profitability of limit orders on the New York Stock Exchange that has a specialist system, a public limit order book, and floor traders. In contrast, we examine the performance of limit orders on the Taiwan Stock Exchange that employs a call market trading mechanism without any designated market makers. Moreover, we investigate the role of bid-ask bounce effect in affecting the performance of limit orders. Rhee and Wang (1997) examine stock price return behavior on the Taiwan stock market and find that the call market prices bounce between the bid and ask price as in a continuous trading mechanism.
The sample contains the transaction prices for all 443 listed stocks on the Taiwan Stock Exchange in the three-month period from January 1 to March 31 of 1999. The three-month period contains 61 trading days. Since we are interested in analyzing the intraday performance of limit orders versus market orders, we need to partition the three-hour trading period into an appropriate number of intervals. Each interval should allow traders to submit limit orders and to evaluate the performance of different order submission strategies. To this end, we partitioned the three-hour trading period into eight overlapping 40-minute intervals from 9:00-9:40 a.m., 9:20-10:00 a.m., until 11:20-12:00 noon.
Our empirical results indicate that executed limit orders significantly outperform market orders. Even after considering the effect of unfilled orders, the unconditional limit orders still perform slightly better than market orders. However, the superior performance of limit orders result mainly from the bid-ask bounce effects on the stock market. When the bid-ask average is used to replace the original purchase and sell prices, the superior performance of executed limit orders declines significantly. The result is consistent with the explanation that limit order traders benefit from the return volatility driven by liquidity traders.
The intraday pattern indicates that the average purchase price of the unexecuted limit orders is the highest near the market open. The average purchase price across the five limit orders is 100.54 in the first interval 9:00-9:40 a.m. The higher purchase price near the market open for unexecuted limit orders differs from the corresponding lower purchase price for the executed limit orders. The result is consistent with the explanation of higher return volatility near the market open. Other thing being equal, the expected purchase price for unexecuted limit orders would be greater if the return volatility is larger.
The results indicate that the average return of –0.025% on the market order is relatively small in magnitude. In contrast, the average return on the executed limit orders is significantly higher than that on the market orders.
The average differential returns on the executed limit orders, defined as the difference of the limit order returns less the market order return, are respectively 0.19%, 0.34%, 0.43%, 0.54%, and 0.63% for the 0%, 0.5%, 1.0%, 1.5%, and 2% limit orders. The result of significantly positive differential returns to executed limit orders is consistent with the hypothesis that limit order traders benefit from price reversals in the investment interval. The result of significantly positive differential returns to executed limit orders is consistent with the profitable return to limit orders documented in Handa and Schwartz (1996).
Moreover, the average returns on the executed limit orders appear to be higher for lower limited buy prices. The average differential return to limit orders increases from 0.19% for the 0% limit order to 0.63% for the 2% limit order. Thus, limit order traders who submit a lower limited buy price, as in the case of 2% limit order, in the preceding trading interval earn a higher return due to a larger price recovery in the subsequent investment interval. However, limit order traders who submit a lower limited buy price suffer from a low execution ratio.
For limit orders that fail to execute in the 20-minute trading interval, the return to the unexecuted limit order is estimated by assuming a purchase price at the prevailing market prices. As in the case of executed orders, the differential returns to the unexecuted limit orders are obtained by subtracting the corresponding market returns from the raw return to unexecuted orders. The differential returns to unexecuted limited orders are generally insignificantly different from zero. The average differential returns range from –0.034% for the 0% limit order to 0.014% for the 2%
limit order. The average differential return across five limit orders is
0.003%, which is insignificantly different from zero. Thus, the result indicates that, on average, the cost of nonexecution for limit orders appears to be insignificantly different from zero.
Given that the differential returns are significantly positive for executed limit orders and insignificantly different from zero for unexecuted limit orders, the weighted average differential returns tend to be significantly positive. The differential returns to unconditional limit orders are generally significantly positive. The average differential return is 0.078% across the five limit orders. Moreover, the average differential returns decrease from 0.17% for the 0% limit order to 0.03% for the 2%
limit order. The lower differential returns to limit orders with lower buy prices are due mainly to the related low execution ratio.
The results of higher average returns for limit orders than for market orders are consistent with both the noise trader hypothesis and the overreaction hypothesis, but not the informed trader hypothesis. Thus, the observation of the significantly positive returns for executed limit orders may be due mainly to the bid-ask bounce driven by liquidity traders or to the price reversals caused by investors’ overreaction (or both).
In conclusion, this project examines the performance of limit orders
versus market orders using intraday transaction prices for all stocks listed on the Taiwan Stock Exchange over the first three months of 1999. The results indicate that executed limit orders significantly outperform market orders. Moreover, even after including the impact of unfilled limit orders, the unconditional limit orders still perform slightly better than the corresponding market orders.The superior performance of limit orders is consistent with the explanation that limit order traders benefit from the bid-ask bounce driven by liquidity trading in the Taiwan stock market. By replacing the purchase and sell prices by the bid-ask average, the superior profitability of limit orders decline significantly.
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