The evolution of price discovery in an electronic market

Alain Chaboud, Erik Hjalmarsson and Filip Zikes

Journal of Banking & Finance, 2021, vol. 130, issue C

Abstract: We study the evolution of the price discovery process in the euro-dollar and dollar-yen currency pairs over a ten-year period on the EBS platform, a global trading venue used by both manual and automated traders. We find that the importance of market orders decreases sharply over that period, owing mainly to a decline in the information share from manual trading, while the information share of market orders from algorithmic and high-frequency traders remains fairly constant. At the same time, there is a substantial, but gradual, increase in the information share of limit orders. Price discovery also becomes faster, suggesting improvements in market efficiency. The results are consistent with theoretical predictions that with a lower information advantage, informed traders tend to use more limit orders.

Keywords: High-frequency trading; Limit orders; Price discovery (search for similar items in EconPapers)
JEL-codes: F31 G14 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: The Evolution of Price Discovery in an Electronic Market (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:130:y:2021:i:c:s0378426621001308

DOI: 10.1016/j.jbankfin.2021.106171

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