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Pre-trade transparency and trade size


  • Maria Elena Bontempi
  • Caterina Lucarelli


We analyse how Pre-Trade Transparency (PTT) affects the behaviour of different stock traders. To do so, we exploit a natural experiment, that is the PTT change in the equity segment of Italian Stock Exchange (ISE) which occurred in July 2007, with the aim of reducing information asymmetries between individuals and intermediaries/institutional investors. We specify a dynamic empirical model for trade size and estimate it on a large panel of tick-by-tick data. Results suggest that increased transparency affects the dynamic trade pattern emerging from interacting strategic decisions of different traders. In addition, the contribution of the order flow disclosure both in reducing the adverse selection component of the bid--ask spread, and in weakening the sensitiveness to risk of the trade size also emerges. Overall, PTT enhancement should reduce the informative disequilibrium among market participants and improve the quality of the market.

Suggested Citation

  • Maria Elena Bontempi & Caterina Lucarelli, 2012. "Pre-trade transparency and trade size," Applied Financial Economics, Taylor & Francis Journals, vol. 22(8), pages 597-609, April.
  • Handle: RePEc:taf:apfiec:v:22:y:2012:i:8:p:597-609
    DOI: 10.1080/09603107.2011.619497

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    References listed on IDEAS

    1. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, January.
    2. Rossi, Eduardo & Santucci de Magistris, Paolo, 2013. "Long memory and tail dependence in trading volume and volatility," Journal of Empirical Finance, Elsevier, vol. 22(C), pages 94-112.
    3. Barbara Rindi, 2008. "Informed Traders as Liquidity Providers: Anonymity, Liquidity and Price Formation," Review of Finance, European Finance Association, vol. 12(3), pages 497-532.
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    Cited by:

    1. Lin, Yaling, 2014. "An empirical study on pre-trade transparency and intraday stealth trading," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 26-40.

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