Revisit of Limit-Order Executions and Cancellations : A Time-Varying Covariate Approach

We extend Chakrabarty, Han, Tyurin and Zheng (2006) competing risk model to the framework of time-varying covariates. It is found that the hazard rate of execution risk is more sensitive to market conditions than the hazard rate of cancellation. Order imbalance has a significant effect on execution probability, but it has no sizable effect on cancellation hazard. Larger spreads reduce the execution risk but increase the hazard rate of cancellation. Order aggressiveness has a positive effect on execution risk, but it has no impact on cancellation risk due to the fleeting orders observed in our data if the distance between the limit price and midquote is factored out. In comparison with models with fixed covariates, all time-varying covariates have stronger impact on execution and cancellation hazard rates, except the variable mearsuing the distance between the limit price and midquote