An empirical analysis of non-execution and picking-off risks on the Tokyo Stock Exchange

Ryuichi Yamamoto*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Citations (Scopus)


This paper investigates how the state of the order-book economy influences non-execution and picking-off risks. We utilize data from the limit order book and transactions in individual stocks on the Tokyo Stock Exchange. We demonstrate that, on the one hand, the risk of non-execution increases, while the risk of being picked off, on the other hand, decreases when: 1) the depth on the incoming investor's side becomes thicker, 2) the bid-ask spread becomes narrower, 3) volatility declines, and 4) the depth on the opposite side to the incoming investor becomes thicker. In addition, we report asymmetric determinants of non-execution and picking-off risks between buy and sell limit orders, as well as among our sample firms. We interpret the asymmetry to be attributed to differences in transaction volume and order book thickness between buy and sell sides of the order book as well as among the firms. More transactions lead to higher quote competitions among limit order traders, increasing the thickness of the order book inside of the spread. It then decreases the rate of executions and of being picked off for limit orders existing outside of the spread. Our results suggest that real-time information on order book and transactions is highly valuable to stock investors, who trade individual securities and manage a portfolio of individual stocks, such as ETFs. Our findings assist real stock investors in reducing the monitoring cost, making more profitable order choices among market and limit orders and exposing/hiding/canceling/revising limit orders, and understanding the price formation process in an order-driven market. They are crucial for investors for better risk management in actual stock markets.

Original languageEnglish
Pages (from-to)369-383
Number of pages15
JournalJournal of Empirical Finance
Publication statusPublished - 2014 Dec 1


  • G11
  • Investment decisions
  • Limit order market
  • Market microstructure
  • Non-execution risk
  • Picking-off risk

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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