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Hide-and-Seek in the Market: Placing and Detecting Hidden Orders

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Author Info
Rudy De Winne
Catherine D'hondt
Abstract

This paper investigates why traders hide their orders and how other traders respond to hidden depth. Using a logit model, we provide empirical findings suggesting that traders use hidden orders to manage both exposure risk and picking off risk. Using probit models, we show that hidden depth increases order aggressiveness. Our interpretation of this empirical evidence is threefold. First, hidden depth detection is possible and frequent. Second, when traders detecthidden volume at the best opposite uote, they strategically adjust their order submission to seize the opportunity for depth improvement. Third, traders' response when hidden depth is detected suggests either that they do not associate hidden orders with informed trading or that the risk of trading with an informed trader is widely offset by the opportunity for depth improvement. Copyright 2007, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/rof/rfm0016
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Publisher Info
Article provided by Oxford University Press for European Finance Association in its journal Review of Finance.

Volume (Year): 11 (2007)
Issue (Month): 4 ()
Pages: 663-692
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:oup:revfin:v:11:y:2007:i:4:p:663-692

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  1. Héléna Beltran-Lopez & Pierre Giot & Joachim Grammig, 2009. "Commonalities in the order book," Financial Markets and Portfolio Management, Springer, vol. 23(3), pages 209-242, September. [Downloadable!] (restricted)
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This page was last updated on 2009-12-4.

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