An international trend in market design: Endogenous effects of limit order book transparency on volatility, spreads, depth and volume

Thu Phuong Pham () and Joakim Westerholm

No 17210, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: Following other leading international securities markets, the Tokyo stock exchange [TSE] has adopted a publicly displayed but anonymous limit order book, and we ask: how is market quality affected? Accounting for fixed effects and endogeneity, we find increased volatility and higher order book depth at the best bid and ask prices, while total depth is not significantly impacted. This predicts more competitive order strategies in a trading system with anonymous orders but with more visible price levels. Spreads are found to be unaffected by the market design change, in contradiction to previous literature. Complementing the literature, we find volume increases, indicating that the aggregate effect of the design change is positive.

Keywords: Market Quality, Limit Order Book; Transparency (search for similar items in EconPapers)
JEL-codes: G10 G15 G18 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2013-10-16, Revised 2013-10-16
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (2)

Published by the University of Tasmania. Discussion paper 2013-12

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Journal Article: An international trend in market design: Endogenous effects of limit order book transparency on volatility, spreads, depth and volume (2013)
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