Anonymity and Broker Ability: Looking for Winners and Losers in a Pool of Averages
30 Pages Posted: 19 Jan 2009 Last revised: 9 Feb 2009
Date Written: February 9, 2009
Market quality indicators such as the bid ask spread are a pool of averages. As such, little is known empirically about the way in which different market participants are affected by anonymity. This study aims at disentangling from that pool of averages, the effect of anonymity on the informed and the uninformed. Brokers are the natural unit of analysis for broker id changes, as only brokers can see other brokers. Using data with broker ids, we show that informed brokers benefit, but not in terms of lower execution costs as the extant literature suggest. In the anonymous regime, informed brokers face less competition from the uninformed attempting to mimic their positions. As a result, their positions earn comparatively greater returns.
Keywords: Anonymity, transparency, information asymmetry, transactions costs, broker ability
JEL Classification: G14
Suggested Citation: Suggested Citation