EconPapers    
Economics at your fingertips  
 

Order Exposure and Liquidity Coordination: Does Hidden Liquidity Harm Price Efficiency?

Gökhan Cebirogly, Nikolaus Hautsch () and Ulrich Horst
Additional contact information
Gökhan Cebirogly: University of Vienna

No 28, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: We show that the excessive use of hidden orders causes artificial price pressures and abnormal asset returns. Using a simple game-theoretical setting, we demonstrate that this effect naturally arises from mis-coordination in trading schedules between traders, when suppliers of liquidity do not sufficiently disclose their trade intentions. As a result, hidden liquidity can increase trading costs and induce excess price fluctuations unrelated to information. Using NASDAQ order book data, we find strong empirical support and illustrate that hidden liquidity is higher if bid-ask spreads are smaller and relative tick sizes are higher.

Keywords: Hidden liquidity; trade synchronization; trading frictions; counterparty attraction; limit order book (search for similar items in EconPapers)
JEL-codes: G02 G10 G23 (search for similar items in EconPapers)
Date: 2017-04-13
New Economics Papers: this item is included in nep-mst
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://rationality-and-competition.de/wp-content/ ... cussion_paper/28.pdf (application/pdf)

Related works:
Working Paper: Order exposure and liquidity coordination: Does hidden liquidity harm price efficiency? (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rco:dpaper:28

Access Statistics for this paper

More papers in Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition
Bibliographic data for series maintained by Viviana Lalli ().

 
Page updated 2024-02-21
Handle: RePEc:rco:dpaper:28