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Anonymity, liquidity and fragmentation

  • Comerton-Forde, Carole
  • Tang, Kar Mei
Registered author(s):

    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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    File URL: http://www.sciencedirect.com/science/article/B6VHN-4V34DF9-1/2/0e76e79a4af12b997a433e9276737dc6
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    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
    Contact details of provider: Web page: http://www.elsevier.com/locate/finmar

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