Hidden Liquidity: Determinants and Impact
AbstractWe cross-sectionally analyze the presence of aggregated hidden depth and trade volume in the S&P 500 and identify its key determinants. We find that the spread is the main predictor for a stock’s hidden dimension, both in terms of traded and posted liquidity. Our findings moreover suggest that large hidden orders are associated with larger transaction costs, higher price impact and increased volatility. In particular, as large hidden orders fail to attract (latent) liquidity to the market, hidden liquidity provision gives rise to negative liquidity externalities.
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Bibliographic InfoPaper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2012-023.
Length: 39 pages
Date of creation: Mar 2012
Date of revision:
Hidden Liquidity; Pretrade Transparency; Iceberg Orders; Informed Trading; Market Impact; Market Quality; Liquidity Externalities; Upstairs Markets; Trade Negotiation;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
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