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Flying under the radar: The real effects of anonymous trading

Najah Attig and Sadok El Ghoul

Journal of Corporate Finance, 2021, vol. 71, issue C

Abstract: Using unique data on TSX Attributed Trading and a new proxy of Tobin's Q that accounts for intangible capital (Peters and Taylor, 2017), we investigate the impact of anonymous trading (AT) on managers' ability to use feedback conveyed by stock prices to improve investment efficiency. We show that AT reduces investment efficiency and that both anonymous buyer-initiated and seller-initiated trades have comparable effects. The negative effect of AT on managerial learning from stock prices is significant only for tangible investments and when disagreement among anonymous traders is high. Taken together, our new evidence indicates that AT distorts investment sensitivity to Tobin's Q, plausibly because anonymity attracts additional (uninformed) liquidity trading, which negatively impacts the effectiveness of asset prices in aggregating private information and in revealing fundamentals.

Keywords: Anonymous trading; Informative feedback; Tobin's Q; Investment efficiency (search for similar items in EconPapers)
JEL-codes: G12 G31 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jcorpfin.2021.102092

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