The Impact of Limit Order Anonymity on Liquidity: Evidence from Paris, Tokyo and Korea
25 Pages Posted: 2 May 2005
Date Written: March 2005
Abstract
This paper examines the impact of broker anonymity on bid-ask spreads in order driven markets. Previous theoretical research predicts that limit order anonymity results in deeper and more liquid markets. This paper examines this proposition using three natural experiments provided by Euronext Paris, the Tokyo Stock Exchange and the Korea Stock Exchange. Euronext Paris and the Tokyo Stock Exchange removed broker identifiers from limit orders on April 23, 2001 and June 30, 2003, respectively. In contrast, the Korea Stock Exchange introduced broker identifiers for limit order books on October 25, 1999. The results provide evidence that altering limit order anonymity has an impact on liquidity. Consistent with expectations, liquidity is enhanced by increased anonymity and adversely affected by decreased anonymity.
Keywords: anonymity, transparency, limit orders
JEL Classification: G10, G14
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Lifting the Veil: An Analysis of Pre-Trade Transparency at the NYSE
By Ekkehart Boehmer, Gideon Saar, ...
-
Lifting the Veil: An Analysis of Pre-Trade Transparency at the Nyse
By Ekkehart Boehmer, Gideon Saar, ...
-
Does Anonymity Matter in Electronic Limit Order Markets?
By Thierry Foucault, Sophie Moinas, ...
-
Does Anonymity Matter in Electronic Limit Order Markets?
By Thierry Foucault, Sophie Moinas, ...
-
Island Goes Dark: Transparency, Fragmentation, Liquidity Externalities, and Multimarket Regulation
-
Reputation Effects in Trading on the New York Stock Exchange
By Andrew Ellul, Robert H. Battalio, ...
-
The Economic Value of a Trading Floor: Evidence from the American Stock Exchange
By Ashish Tiwari, Robert A. Schwartz, ...
-
Lack of Anonymity and the Inference from Order Flow
By Juhani T. Linnainmaa and Gideon Saar
-
Market Architecture and Global Exchange Efficiency: One Design Need not Fit all Stock Sizes