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Journal Articles Review of Financial Studies Year : 2007

Does Anonymity Matter in Electronic Limit Order Markets?

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Sophie Moinas
  • Function : Author
Erik Theissen
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Abstract

We develop a model in which limit order traders possess volatility information. We show that in this case the size of the bid-ask spread is informative about future volatility. Moreover, if volatility information is in part private, we establish that (i) the size of the bid-ask spread and (ii) its informativeness about future volatility should change in the same direction when limit order traders' identifiers stop being disclosed. We test these predictions using data from the Paris Bourse. As expected, we find that the average quoted spread and its informativeness are significantly smaller when limit order traders' identifiers are concealed. These findings suggest that the limit order book is a channel for volatility information.

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hal-00459795 , version 1 (25-02-2010)

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Thierry Foucault, Sophie Moinas, Erik Theissen. Does Anonymity Matter in Electronic Limit Order Markets?. Review of Financial Studies, 2007, Vol.20,n°5, pp.1707-1747. ⟨10.1093/rfs/hhm027⟩. ⟨hal-00459795⟩

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