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Hidden Liquidity: Some New Light on Dark TradingRobert J. BloomfieldCornell University - Samuel Curtis Johnson Graduate School of Management Maureen O'HaraCornell University - Samuel Curtis Johnson Graduate School of Management Gideon SaarCornell University - Samuel Curtis Johnson Graduate School of Management June 2012 Johnson School Research Paper Series No. 46-2011 Abstract: We use a laboratory market to investigate how the ability to hide orders affects traders’ strategies and market outcomes. We examine three market structures: Visible markets in which all orders must be displayed, Iceberg markets in which a minimum size must be displayed, and Hidden markets in which orders can be displayed, partially displayed, or completely non-displayed. We find that although order strategies are greatly affected by allowing hidden liquidity, most market outcomes are not. Our results on the robustness of informational efficiency and liquidity to opacity regimes have important regulatory implications for debates surrounding dark trading.
Number of Pages in PDF File: 48 Keywords: transparency, dark liquidity, hidden liquidity, iceberg markets, experiments, liquidity, informational efficiency, market microstructure JEL Classification: G10, G18, C92 working papers seriesDate posted: March 11, 2012 ; Last revised: June 28, 2012Suggested CitationContact Information
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