Hidden Liquidity: Some New Light on Dark Trading

49 Pages Posted: 6 Dec 2011 Last revised: 12 Mar 2012

Robert J. Bloomfield

Cornell University - Samuel Curtis Johnson Graduate School of Management

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management

Gideon Saar

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: December 5, 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.

Suggested Citation

Bloomfield, Robert J. and O'Hara, Maureen and Saar, Gideon, Hidden Liquidity: Some New Light on Dark Trading (December 5, 2011). Johnson School Research Paper Series No. 46-2011. Available at SSRN: https://ssrn.com/abstract=1968637 or http://dx.doi.org/10.2139/ssrn.1968637

Robert J. Bloomfield (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

450 Sage Hall
Ithaca, NY 14853
United States
607-255-9407 (Phone)
607-254-4590 (Fax)

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)

Gideon Saar

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

431 Sage Hall
Ithaca, NY 14853
United States
607-255-7484 (Phone)
607-255-5993 (Fax)

HOME PAGE: https://www.johnson.cornell.edu/Faculty-And-Research/Profile?id=gs25

Register to save articles to
your library

Register

Paper statistics

Downloads
533
rank
21,817
Abstract Views
7,609
PlumX