Hide-and-Seek in the Market: Placing and Detecting Hidden Orders

Posted: 14 Jul 2008

See all articles by Rudy De Winne

Rudy De Winne

UCLouvain

Catherine D'Hondt

UCLouvain, Louvain School of Management - Louvain Finance

Multiple version iconThere are 2 versions of this paper

Abstract

This paper investigates why traders hide their orders and how other traders respond to hidden depth. Using a logit model, we provide empirical findings suggesting that traders use hidden orders to manage both exposure risk and picking off risk. Using probit models, we show that hidden depth increases order aggressiveness. Our interpretation of this empirical evidence is threefold. First, hidden depth detection is possible and frequent. Second, when traders detecthidden volume at the best opposite uote, they strategically adjust their order submission to seize the opportunity for depth improvement. Third, traders' response when hidden depth is detected suggests either that they do not associate hidden orders with informed trading or that the risk of trading with an informed trader is widely offset by the opportunity for depth improvement.

Keywords: G14, G10

Suggested Citation

De Winne, Rudy and D'Hondt, Catherine, Hide-and-Seek in the Market: Placing and Detecting Hidden Orders. Review of Finance, Vol. 11, Issue 4, pp. 663-692, 2007. Available at SSRN: https://ssrn.com/abstract=1159300 or http://dx.doi.org/10.1093/rof/rfm0016

Rudy De Winne (Contact Author)

UCLouvain ( email )

Chaussée de Binche, 151
Mons, 7000
Belgium
+3265323334 (Phone)

Catherine D'Hondt

UCLouvain, Louvain School of Management - Louvain Finance ( email )

151 Chaussée de Binche
Mons, 7000
Belgium

Register to save articles to
your library

Register

Paper statistics

Abstract Views
795
PlumX Metrics