Market for Information and Identity Disclosure in an Experimental Open Limit Order Book

24 Pages Posted: 19 May 2006

See all articles by Pietro Perotti

Pietro Perotti

University of Bath - School of Management

Barbara Rindi

Bocconi University and IGIER and Baffi Carefin

Abstract

This paper analyses the effects of pre-trade transparency on market quality in an experimental open limit order book preceded by a market for information. The design of the trading game is akin to the system in use in an increasing number of financial markets. We find that the disclosure of traders' identities reduces the incentive to acquire information, liquidity and volatility. We also show that a positive relation exists between the proportion of traders buying information and liquidity. The results are consistent with a standard model of price formation where the number of informed traders is endogenous.

JEL Classification: D84, G14

Suggested Citation

Perotti, Pietro and Rindi, Barbara, Market for Information and Identity Disclosure in an Experimental Open Limit Order Book. Economic Notes, Vol. 35, No. 1, pp. 97-119, February 2006. Available at SSRN: https://ssrn.com/abstract=901845 or http://dx.doi.org/10.1111/j.0391-5026.2006.00160.x

Pietro Perotti

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

HOME PAGE: http://www.bath.ac.uk/management/faculty/pietro-perotti.html

Barbara Rindi (Contact Author)

Bocconi University and IGIER and Baffi Carefin ( email )

Via Roentgen 1
Milan, 20136
Italy
+39 58365328 (Phone)

HOME PAGE: http://faculty.unibocconi.eu/barbararindi

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