City Research Online

Trading anonymity and order anticipation

Friederich, S. and Payne, R. (2014). Trading anonymity and order anticipation. Journal of Financial Markets, 21, pp. 1-24. doi: 10.1016/j.finmar.2014.07.002

Abstract

Does it matter to market quality if broker identities are revealed after a trade and only to the two traders involved? We find that implementing full anonymity dramatically improves liquidity and reduces trader execution costs. To explain this, we compare theories based on asymmetric information to an order anticipation mechanism, where identity signals trader size, allowing strategic agents to predict the future order flow of large traders. Evidence supports the anticipation hypothesis: liquidity improves most in stocks where trading is heavily concentrated among a few brokers and in stocks susceptible to temporary price pressure. Also, only traders having large market shares benefit from anonymity.

Publication Type: Article
Additional Information: © 2015, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Trading anonymity; Limit order trading; Trading costs; Institutional investors; London Stock Exchange
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/5165
[img]
Preview
Text - Accepted Version
Available under License : See the attached licence file.

Download (368kB) | Preview
[img]
Preview
Text (Commons Attribution-NonCommercial-NoDerivatives 4.0 International) - Other
Download (201kB) | Preview

Export

Downloads

Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login