Demand for the Immediacy of Execution: Time is Money1

Recent interest in the time-to-execution as a measure of market quality in order-driven markets coincides with the emerging empirical research on this topic. We build on recent theoretical models of dynamic limit order book to construct an estimation procedure that tests the e¤ect of the expected time-to-execution on order aggressiveness, taking into account the simultaneous determination of the two variables in equilibrium, the selection bias, and the censoring of the time variable. Using very detailed data from the Tel Aviv Stock Exchange, we show that the reduction in the expected timeto-execution is an important determinant of order aggressiveness, and may account for over 50% of the spread. Moreover, we obtain qualitatively similar results for stocks and government bonds that are traded on the same platform, which suggests that immediacy considerations have a signi…cant e¤ect on the high frequency price dynamics regardless of the degree of information asymmetry. We also show that the expected time-to-execution explains the choice of order strategy better than the probability of execution, which was traditionally used in the literature. Finally, our results corroborate predictions of several theoretical models of order driven markets. JEL classi…cation: G10, G15 C35.