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http://hdl.handle.net/10419/43194
  
Title:The impact of hidden liquidity in limit order books PDF Logo
Authors:Frey, Stefan
Sandås, Patrik
Issue Date:2008
Series/Report no.:CFS Working Paper 2008/48
Abstract:We report evidence that the presence of hidden liquidity is associated with greater liquidity in the order books, greater trading volume, and smaller price impact. Limit and market order submission behavior changes when hidden liquidity is present consistent with at least some traders being able to detect hidden liquidity. We estimate a model of liquidity provision that allows us to measure variations in the marginal and total payoffs from liquidity provision in states with and without hidden liquidity. Our estimates of the expected surplus to providers of visible and hidden liquidity are positive and typically of the order of one-half to one basis points per trade. The positive liquidity provider surpluses combined with the increased trading volume when hidden liquidity is present are both consistent with liquidity externalities.
Subjects:Hidden Liquidity
Iceberg Orders
Hidden Orders
Reserve Orders
Limit Order Markets
Limit Order Books
Transparency
JEL:G10
G14
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-62275
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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