Does Anonymity Matter in Electronic Limit Order Markets?

Posted: 26 Jun 2008

See all articles by Thierry Foucault

Thierry Foucault

HEC Paris - Finance Department

Sophie Moinas

Toulouse School of Economics

Erik Theissen

University of Mannheim - Finance Area

Multiple version iconThere are 3 versions of this paper

Date Written: 2007

Abstract

We develop a model in which limit order traders possess volatility information. We show that in this case the size of the bid ask spread is informative about future volatility. Moreover, if volatility information is in part private, we establish that (i) the size of the bid ask spread and (ii) its informativeness about future volatility should change in the same direction when limit order traders' identifiers stop being disclosed. We test these predictions using data from the Paris Bourse. As expected, we find that the average quoted spread and its informativeness are significantly smaller when limit order traders' identifiers are concealed. These findings suggest that the limit order book is a channel for volatility information.

Keywords: G10, G14, G24

Suggested Citation

Foucault, Thierry and Moinas, Sophie and Theissen, Erik, Does Anonymity Matter in Electronic Limit Order Markets? (2007). Review of Financial Studies, Vol. 20, No. 5, 2007. Available at SSRN: https://ssrn.com/abstract=1151566 or http://dx.doi.org/10.1093/rfs/hhm027

Thierry Foucault (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
(33)139679569 (Phone)
(33)139677085 (Fax)

HOME PAGE: http://thierryfoucault.com/

Sophie Moinas

Toulouse School of Economics ( email )

Toulouse 1 Capitole University
Place Anatole-France
Toulouse Cedex, F-31042
France

Erik Theissen

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

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