Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/185698
Authors: 
Cebirogly, Gökhan
Hautsch, Nikolaus
Horst, Ulrich
Year of Publication: 
2017
Series/Report no.: 
Discussion Paper No. 28
Abstract: 
We show that the excessive use of hidden orders causes artificial price pressures and abnormal asset returns. Using a simple game-theoretical setting, we demonstrate that this effect naturally arises from mis-coordination in trading schedules between traders, when suppliers of liquidity do not sufficiently disclose their trade intentions. As a result, hidden liquidity can increase trading costs and induce excess price fluctuations unrelated to information. Using NASDAQ order book data, we find strong empirical support and illustrate that hidden liquidity is higher if bid-ask spreads are smaller and relative tick sizes are higher.
Subjects: 
Hidden liquidity
trade synchronization
trading frictions
counterparty attraction
limit order book
JEL: 
G02
G10
G23
Document Type: 
Working Paper

Files in This Item:
File
Size
716.96 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.