Journal of Financial Economics 65 (2002) 31–71
Econometric models of limit-order executions
Andrew W. Lo
*, A. Craig MacKinlay
, June Zhang
MIT Sloan School of Management, 50 Memorial Drive, Cambridge, MA 02142-1347, USA
Finance Department, 2300 Steinberg-Dietrich Hall, Wharton School, University of Pennsylvania,
Philadelphia, PA 19104-6367, USA
AlphaSimplex Group, One Cambridge Center, Cambridge, MA 02142, USA
Received 25 September 1997; received in revised form 24 November 2000
We develop and estimate an econometric model of limit-order execution times using
survival analysis and actual limit-order data. We estimate versions for time-to-ﬁrst-ﬁll and
time-to-completion for both buy and sell limit orders, and incorporate the effects of
explanatory variables such as the limit price, limit size, bid/offer spread, and market volatility.
Execution times are very sensitive to the limit price, but are not sensitive to limit size.
Hypothetical limit-order executions, constructed either theoretically from ﬁrst-passage times
or empirically from transactions data, are very poor proxies for actual limit-order executions.
r 2002 Elsevier Science B.V. All rights reserved.
JEL classiﬁcation: G23
Keywords: Market microstructure; Transactions costs; Portfolio management
This research was partially supported by the MIT Laboratory for Financial Engineering, the Rodney
White Center for Financial Research, and the National Science Foundation (Grant No. SBR-9709976).
We are grateful to ITG for providing us with their limit-order dataset, and to the New York Stock
Exchange for their TORQ dataset. We thank Jushan Bai, David Cushing, Robert Ferstenberg, Harvey
Fram, Joachim Grammig, Larry Harris, Joel Hasbrouck, Stephanie Hogue Mauricio Karchmer, David
Modest, Bill Schwert, George Soﬁanos, the referee, and participants at the Finance Seminar at Johann
Wolfgang Goethe University (Frankfurt), the Berkeley Program in Finance, the Western Finance
Association’s 1998 Annual Meeting, and the 1998 Conference on the International Competition for Order
Flow for helpful comments and discussion.
E-mail address: email@example.com (A.W. Lo).
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