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Anonymity, liquidity and fragmentation

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  • Comerton-Forde, Carole
  • Tang, Kar Mei
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    Abstract

    We examine the effects of the removal of broker identifiers from the central limit order book of the Australian Stock Exchange. We find that spreads and order aggressiveness decline, and order book depth increases, with the introduction of anonymous trading. This is consistent with the hypothesis that limit order traders are more willing to expose their orders when they can do so anonymously. Anonymous markets attract order flow from non-anonymous substitute markets, but this effect is only seen in large stocks. Our results suggest that exchanges operating in fragmented markets should consider anonymous trading to improve price competition and liquidity, although some of these benefits may be significant only if the stocks are sufficiently large and liquid.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Markets.

    Volume (Year): 12 (2009)
    Issue (Month): 3 (August)
    Pages: 337-367

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    Handle: RePEc:eee:finmar:v:12:y:2009:i:3:p:337-367

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    Web page: http://www.elsevier.com/locate/finmar

    Related research

    Keywords: Anonymity Liquidity Market fragmentation Order flow;

    References

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    Cited by:
    1. Duong, Huu Nhan & Kalev, Petko S., 2013. "Anonymity and order submissions," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 101-118.
    2. Duong, Huu Nhan & Kalev, Petko S. & Krishnamurti, Chandrasekhar, 2009. "Order aggressiveness of institutional and individual investors," Pacific-Basin Finance Journal, Elsevier, vol. 17(5), pages 533-546, November.
    3. Pham, Thu Phuong & Westerholm, P. Joakim, 2013. "A survey of research into broker identity and limit order book," Working Papers 17212, University of Tasmania, School of Economics and Finance, revised 16 Oct 2013.
    4. Pham, Thu Phuong, 2013. "Broker ID Transparency and Price Impact of Trades: Evidence from the Korean Exchange," Working Papers 17211, University of Tasmania, School of Economics and Finance, revised 16 Oct 2013.

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