City Research Online

The Impact of Reduced Pre-Trade Transparency Regimes on Market Quality

Kovaleva, P. & Iori, G. (2015). The Impact of Reduced Pre-Trade Transparency Regimes on Market Quality. Journal of Economic Dynamics & Control, 57, pp. 145-162. doi: 10.1016/j.jedc.2015.05.011


This paper studies the effects of pre-trade quote transparency on spread, price discovery and liquidity in an artificial limit order market with heterogeneous trading rules. Our agent-based numerical experiments suggest that full quote transparency incurs substantial transaction costs to traders and dampens trading activity in an order-driven market. Our finding reveals that exogenous restriction of displayed depth, up to several best quotes, does not benefit market performance. On the contrary, endogenous restriction of displayed quote depth, by means of iceberg orders, improves market quality in multiple dimensions: it reduces average transaction costs, maintains higher liquidity and moderate volatility, balances the limit order book, and enhances price discovery.

Publication Type: Article
Additional Information: © 2015, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International
Publisher Keywords: Agent based models; Market transparency; Iceberg orders; Liquidity; Bid-ask spread
Subjects: H Social Sciences > HB Economic Theory
Departments: School of Policy & Global Affairs > Economics
SWORD Depositor:
[thumbnail of ReducedTransparency_Revision2_Polina.pdf]
Text - Submitted Version
Available under License : See the attached licence file.

Download (258kB) | Preview
[thumbnail of Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Licence]
Text (Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Licence) - Other
Download (201kB) | Preview


Add to AnyAdd to TwitterAdd to FacebookAdd to LinkedinAdd to PinterestAdd to Email


Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login