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Romans Pancs

Journal of the European Economic Association, 2014, vol. 12, issue 3, 702-723

Abstract: A significant fraction of trade in stock exchanges (e.g., Euronext and NASDAQ) involves ‘iceberg orders’, which are orders to sell or buy a certain number of shares with the caveat that only a part of that number be made public. This paper provides a normative justification for the lack of transparency in this kind of order: imperfect disclosure is shown to be a necessary feature of any optimal mechanism when the asset's potential buyers must incur a cost in order to become active and learn their valuations for the asset. This finding raises a caveat for regulation that seeks to mandate the open order book or otherwise increase the pre-trade transparency of stock exchanges.

Date: 2014
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Journal of the European Economic Association is currently edited by Fabrizio Zilibotti, Dirk Bergemann, Nicola Gennaioli, Claudio Michelacci and Daniele Paserman

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