The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Limit Orders, Depth, and Volatility: Evidence from the Stock Exchange of Hong Kong
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00345
Hee‐Joon Ahn, Kee‐Hong Bae, Kalok Chan
We investigate the role of limit orders in the liquidity provision in a pure order‐driven market. Results show that market depth rises subsequent to an increase in transitory volatility, and transitory volatility declines subsequent to an increase in market depth. We also examine how transitory volatility affects the mix between limit orders and market orders. When transitory volatility arises from the ask (bid) side, investors will submit more limit sell (buy) orders than market sell (buy) orders. This result is consistent with the existence of limit‐order traders who enter the market and place orders when liquidity is needed.