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

See all articles by Alex Frino

Alex Frino

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

J. George Li

University of Sydney - School of Economics and Business, Discipline of Finance

Date Written: February 9, 2009

Abstract

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

Frino, Alex and Li, Jun George, Anonymity and Broker Ability: Looking for Winners and Losers in a Pool of Averages (February 9, 2009). Available at SSRN: https://ssrn.com/abstract=1329807 or http://dx.doi.org/10.2139/ssrn.1329807

Alex Frino

The University of Sydney - Discipline of Finance ( email )

Futures Research Centre
P.O. Box H58
Sydney NSW
Australia
+61 2 9299 1809 (Phone)
+61 2 9299 1830 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Jun George Li (Contact Author)

University of Sydney - School of Economics and Business, Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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