Impact of Anonymity on Liquidity in Limit Order Books: Evidence from Cross-listed Stocks

48 Pages Posted: 19 Aug 2012 Last revised: 2 May 2016

See all articles by Jane Chau

Jane Chau

University of Wollong - School of Accounting and Finance

Alex Frino

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

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Shiguang Ma

University of Wollongong - School of Accounting Economics and Finance

Date Written: September 13, 2013

Abstract

This paper examines anonymity effects on liquidity migration of cross-listed stocks using a natural experiment created by the staggered move to anonymity regime undertaken by ASX and NZX. The 2SLS instrumental variable estimation shows two interesting trends. When considering liquidity impact on cross-listed stocks after ASX switched to anonymous trading, bid-ask spreads, quoted depth and trading volume improve on ASX, but deteriorate on NZX. On the other hand, when considering NZX’s adoption of anonymous trading, liquidity decreases on ASX, but increases on NZX. Consistent with our hypothesis, anonymity attracts the trading of cross-listed stocks from the foreign counterparty. Results also suggest the existence of commonality in liquidity in financial markets, and the inclusion of this commonality in natural experiment studies may be necessary.

Keywords: anonymity, liquidity, cross-listed, commonality in liquidity

JEL Classification: G14, G15

Suggested Citation

Chau, Jane and Frino, Alex and Tian, Gary Gang and Ma, Shiguang, Impact of Anonymity on Liquidity in Limit Order Books: Evidence from Cross-listed Stocks (September 13, 2013). 25th Australasian Finance and Banking Conference 2012, Available at SSRN: https://ssrn.com/abstract=2131946 or http://dx.doi.org/10.2139/ssrn.2131946

Jane Chau (Contact Author)

University of Wollong - School of Accounting and Finance ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

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

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Room 513, Building E4A
North Ryde, NSW, 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Shiguang Ma

University of Wollongong - School of Accounting Economics and Finance ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

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