Queuing Uncertainty of Limit Orders
Management Science · 2026 · Volume 72 · Issue 6
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. This paper was accepted by Agostino Capponi, finance. Supplemental Material: The supplementary appendix and data files are available at https://doi.org/10.1287/mnsc.2023.03371 .
Keywords
limit order book, depth, latency, time priority, market fragmentation
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