The impact of limit order anonymity on liquidity

Evidence from Paris, Tokyo and Korea

Carole Comerton-Forde, Alex Frino*, Vito Mollica

*Corresponding author for this work

Research output: Contribution to journalArticle

18 Citations (Scopus)

Abstract

This paper examines the impact of broker anonymity on bid-ask spreads in order driven markets. Previous theoretical research predicts that limit order anonymity results in deeper and more liquid markets. This paper examines this proposition using three natural experiments provided by Euronext Paris, the Tokyo Stock Exchange and the Korea Stock Exchange. Euronext Paris and the Tokyo Stock Exchange removed broker identifiers from limit orders on April 23, 2001 and June 30, 2003, respectively. In contrast, the Korea Stock Exchange introduced broker identifiers for limit order books on October 25, 1999. The results provide evidence that altering limit order anonymity has an impact on liquidity. Consistent with expectations, liquidity is enhanced by increased anonymity and adversely affected by decreased anonymity.

Original languageEnglish
Pages (from-to)528-540
Number of pages13
JournalJournal of Economics and Business
Volume57
Issue number6
DOIs
Publication statusPublished - Nov 2005
Externally publishedYes

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