Market Liquidity, Stock Characteristics and Order Cancellations : The Case of Fleeting Orders

We document stylized facts about very short-lived - fleeting - orders submitted to a limit order trading platform, and study the dynamics of fleeting order activity. Principal component analysis for the probabilities of limit order cancellation shows that most of the cross-sectional variation in limit order cancellation probabilities can be explained by the inverse of the relative tick size of the stock, which can be interpreted as the limit order book granularity for this stock. We model the non-marketable limit order flow as a mixture of two order types, one for very short duration orders and the other for longer duration order. By allowing the mixing probability to depend on time of the day, stock characteristics, and market conditions, we find that fleeting orders are more likely to be observed for aggressive quotes, and in market conditions characterized by higher volatility, wider bid-ask spreads, and higher volumes of hidden transactions inside the spread