Premium
Market for Information and Identity Disclosure in an Experimental Open Limit Order Book
Author(s) -
Perotti Pietro,
Rindi Barbara
Publication year - 2006
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/j.0391-5026.2006.00160.x
Subject(s) - market liquidity , volatility (finance) , transparency (behavior) , incentive , order (exchange) , information asymmetry , economics , microeconomics , price discovery , limit (mathematics) , financial market , financial economics , monetary economics , business , finance , law , mathematical analysis , mathematics , political science , futures contract
This paper analyses the effects of pre‐trade transparency on market quality in an experimental open limit order book preceded by a market for information. The design of the trading game is akin to the system in use in an increasing number of financial markets. We find that the disclosure of traders’ identities reduces the incentive to acquire information, liquidity and volatility. We also show that a positive relation exists between the proportion of traders buying information and liquidity. The results are consistent with a standard model of price formation where the number of informed traders is endogenous .