The Evolution of Informed Liquidity Provision: Evidence from an Order†driven Market

Marvin Wee and Joey W. Yang

European Financial Management, 2016, vol. 22, issue 5, 882-915

Abstract: The liquidity provision strategies by institutional traders on the ASX have changed over the period 2006 to 2012. Besides using smaller†sized orders more frequently than their retail counterparts, they have increased the use of passive limit orders. Institutional traders are found to be more sensitive and responsive to changes in market conditions. Analyses on order placement and price impact suggest that institutional traders are better informed. However, their limit orders are found to have a lower price impact at the intra†day level in the 2012 subsample period. We show evidence this is associated with the proliferation of algorithmic and high frequency trading.

Date: 2016
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