On the Hidden Side of Liquidity

European Journal of Finance, Forthcoming

26 Pages Posted: 31 Oct 2003 Last revised: 24 Mar 2015

See all articles by Ángel Pardo Tornero

Ángel Pardo Tornero

University of Valencia - Department of Financial Economics

Roberto Pascual

Universidad de las Islas Baleares

Date Written: September 1, 2007


This paper deals with the informativeness of iceberg orders, also known as hidden limit orders (HLOs). Namely, we analyze how the market reacts when the presence of hidden volume in the limit order book is revealed by the trading process. We use high frequency book and transaction data from the Spanish Stock Exchange, including a large sample of executed HLOs. We show that just when hidden volume is detected, traders on the opposite side of the market become more aggressive, exploiting the opportunity to consume more than expected at the best quotes. However, neither illiquidity nor volatility increases in the short-term. Furthermore, the detection of hidden volume has no relevant price impact. Overall, our results suggest that market participants do not attribute any relevant informational content to the hidden side of liquidity.

JEL Classification: G1

Suggested Citation

Pardo Tornero, Ángel and Pascual Gascó, Roberto, On the Hidden Side of Liquidity (September 1, 2007). European Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=459000 or http://dx.doi.org/10.2139/ssrn.459000

Ángel Pardo Tornero (Contact Author)

University of Valencia - Department of Financial Economics ( email )

Avda. del Tarongers, s/n
46022 Valencia

Roberto Pascual Gascó

Universidad de las Islas Baleares ( email )

Ctra. de Valldemossa km 7,5
Departamento de Economia y Empresa
Palma, Baleares
+34 971 17 13 29 (Phone)
+34 971 17 23 89 (Fax)

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