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Does Trading Anonymously Enhance Liquidity?

Listed author(s):
  • Dennis, Patrick J.

    ()

    (McIntire School of Commerce, University of Virginia)

  • Sandås, Patrik

    ()

    (McIntire School of Commerce, University of Virginia)

Registered author(s):

    Anonymous trading is the norm in today's financial markets but there are a few exceptions. We study one such case, the OMX Nordic Exchanges (Stockholm, Helsinki, Copenhagen, and Reykjavik) that have traditionally been more transparent than most other markets. On June 2, 2008 OMX Nordic switched to making post-trade reporting anonymous for some of their markets. We exploit this quasinatural experiment to investigate the impact this change had on liquidity and trading behavior. Our difference-in-difference method reveals a modest, though statistically insignificant, 14 basis point improvement in the quoted spread under the post-trade anonymous regime. The price impact of a trade decreased by a statistically significant four basis points for seller-initiated trades and did not change for buyer-initiated trades.

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    File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2014/rap_wp288_141015.pdf
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    Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 288.

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    Length: 34 pages
    Date of creation: 01 Oct 2014
    Handle: RePEc:hhs:rbnkwp:0288
    Contact details of provider: Postal:
    Sveriges Riksbank, SE-103 37 Stockholm, Sweden

    Phone: 08 - 787 00 00
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    Web page: http://www.riksbank.com/
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