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Anonymity and the Information Content of the Limit Order Book

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  • Duong, Huu Nhan
  • Kalev, Petko S.

Abstract

We investigate the effect of broker anonymity on the information content of the limit order book on the Australian Stock Exchange. We argue that the move to anonymity has stronger impact on institutional than individual investors. We document that anonymity increases the informativeness of institutional limit orders about future volatility but has little effect on individual limit orders. Our findings imply that anonymity allows institutional investors to display informative orders in the limit order book. Prices, however, adjust less sufficiently to institutional investors’ order flow. Overall, anonymity may improve liquidity but it comes at the cost of reduced price efficiency.

Suggested Citation

  • Duong, Huu Nhan & Kalev, Petko S., 2014. "Anonymity and the Information Content of the Limit Order Book," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 30(C), pages 205-219.
  • Handle: RePEc:eee:intfin:v:30:y:2014:i:c:p:205-219
    DOI: 10.1016/j.intfin.2014.02.004
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    Cited by:

    1. Mark Paddrik & Roy Hayes & William Scherer & Peter Beling, 2014. "Effects of Limit Order Book Information Level on Market Stability Metrics," Working Papers 14-09, Office of Financial Research, US Department of the Treasury.
    2. repec:spr:jeicoo:v:12:y:2017:i:2:d:10.1007_s11403-015-0164-6 is not listed on IDEAS

    More about this item

    Keywords

    Anonymity; Institutional and individual investors; Order book slope; Limit order book information; Price volatility;

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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