The Effect of Anonymity on Price Efficiency: Evidence from the Removal of Broker Identities

33 Pages Posted: 13 Jul 2018

See all articles by Huu Nhan Duong

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Paul Lajbcygier

Monash University - Department of Banking & Finance

Jerry Lu

Monash University

Van Hoang Vu

Department of Economics, Finance and Marketing, La Trobe University

Date Written: June 8, 2018

Abstract

We show that broker identities are important for price formation. We use the removal of broker identities by the ASX on November 28th 2005 as a natural experiment and compare the information signal of broker identities before and after its removal. We find that broker identities have significant information content, which reduces after the market becomes anonymous. The reduction in the information content of broker identities is larger during periods of high adverse selection costs, such as during days with price-sensitive corporate announcements. Overall, whilst anonymity may provide various ancillary benefits, our evidence suggests that removing broker identities reduces the informativeness of order flow and thus the anonymous market can be costly for uninformed investors.

Keywords: Broker Identities, Price Discovery, Anonymity

Suggested Citation

Duong, Huu Nhan and Lajbcygier, Paul and Lu, Jerry Shuai and Vu, Van Hoang, The Effect of Anonymity on Price Efficiency: Evidence from the Removal of Broker Identities (June 8, 2018). Pacific-Basin Finance Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3197485

Huu Nhan Duong

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

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

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

Paul Lajbcygier

Monash University - Department of Banking & Finance ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Jerry Shuai Lu

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Van Hoang Vu (Contact Author)

Department of Economics, Finance and Marketing, La Trobe University ( email )

Melbourne, 3086
Australia

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