The use of undisclosed limit orders on the Australian Stock Exchange

Michael J. Aitken*, Henk Berkman, Derek Mak

*Corresponding author for this work

Research output: Contribution to journalArticle

26 Citations (Scopus)

Abstract

This paper investigates the use of undisclosed limit orders on the Australian Stock Exchange (ASX). Our findings suggest that undisclosed limit orders are used to reduce the option value of limit orders. We find no evidence that undisclosed limit orders are more frequently used by informed traders than disclosed limit orders. The effects of recent changes in undisclosed order regulation are also examined. We find that the enhancement in pre-trade transparency, through tightening the undisclosed order regulation in October 1994, resulted in a significant decline in trading volume. The impact of the second regulation change in October 1996, which further tightened undisclosed order regulation, resulted in a less significant trading volume reduction.

Original languageEnglish
Pages (from-to)1589-1603
Number of pages15
JournalJournal of Banking and Finance
Volume25
Issue number8
DOIs
Publication statusPublished - Aug 2001
Externally publishedYes

Keywords

  • G14
  • Market liquidity
  • Market transparency
  • Order option values
  • Quote-matching
  • Undisclosed limit orders

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