Bessembinder, Hendrik
[VerfasserIn]
;
Panayides, Marios A.
[Sonstige Person, Familie und Körperschaft];
Venkataraman, Kumar
[Sonstige Person, Familie und Körperschaft]
Anmerkungen:
In: Journal of Financial Economics (JFE), Forthcoming
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments February 5, 2009 erstellt
Beschreibung:
Many stock exchanges choose to reduce market transparency by allowing traders to hide some or all of their order size. We study costs and benefits of hidden order usage for a sample of Euronext-Paris stocks, where hidden orders represent 44% of sample order volume. All else equal, hidden orders are associated with smaller opportunity costs and lower implementation shortfall costs. However, hidden orders are less likely to execute completely and exhibit longer times to execution. The presence and magnitude of hidden orders can be predicted to a significant but imperfect degree based on observable order attributes, firm characteristics and market conditions. We find that the option to hide order size is used differently by traders who submit passive versus aggressively priced orders. Specifically, aggressively priced orders tend to be exposed, to draw out potential counterparties and allow quick execution, while larger and less aggressively priced orders tend to be hidden, to reduce the option value of standing limit orders. Overall, the results indicate that the option to hide order size is valuable, in particular to patient traders without superior information on future security price movements