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The Impact of Large Orders in Electronic Markets

Author

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  • L. Bosetti
  • P. Gottardo
  • M. Murgia
  • A. Pinna

Abstract

We examine both displayed and non-displayed orders sent by all investors to the electronic central limit order book of the Italian stock exchange Borsa Italiana (BI) in 2005, after stocks recovered from the dot-com burst and before the run-up to the financial crisis. Extant literature relies on trades as basic level of observation for the lack of data. Our unique dataset enables us to re- construct the evolution of the order book and trades over time. Trading costs are lower than in any other exchange analysed in the past. Rules on over-the-counter trading allow us to measure the economic impact of market fragmentation. Contrarily to the existing literature, we observe price impacts are lower in the electronic downstairs market than in the upstairs market. We explain our results in terms of exchange trading architecture.

Suggested Citation

  • L. Bosetti & P. Gottardo & M. Murgia & A. Pinna, 2015. "The Impact of Large Orders in Electronic Markets," Working Paper CRENoS 201510, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    • Handle: RePEc:cns:cnscwp:201510
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    More about this item

    Keywords

    Large Orders; Electronic exchange; Upstairs market; Block trading; Price Impact; Liquidity; Dark Pool;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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