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Market for Information and Identity Disclosure in an Experimental Open Limit Order Book

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  • Pietro Perotti
  • Barbara Rindi

Abstract

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.

Suggested Citation

  • Pietro Perotti & Barbara Rindi, 2006. "Market for Information and Identity Disclosure in an Experimental Open Limit Order Book," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 35(1), pages 97-119, February.
    • Handle: RePEc:bla:ecnote:v:35:y:2006:i:1:p:97-119
    DOI: 10.1111/j.0391-5026.2006.00160.x
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    References listed on IDEAS

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    8. Madhavan, Ananth, 1996. "Security Prices and Market Transparency," Journal of Financial Intermediation, Elsevier, vol. 5(3), pages 255-283, July.
    9. Garfinkel, Jon A. & Nimalendran, M., 2003. "Market Structure and Trader Anonymity: An Analysis of Insider Trading," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(3), pages 591-610, September.
    10. Kormendi, Roger C. & Plott, Charles R., 1982. "Committee decisions under alternative procedural rules : An experimental study applying a new non-monetary method of preference inducement," Journal of Economic Behavior & Organization, Elsevier, vol. 3(2-3), pages 175-195.
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    Cited by:

    1. Gozluklu, Arie E., 2016. "Pre-trade transparency and informed trading: Experimental evidence on undisclosed orders," Journal of Financial Markets, Elsevier, vol. 28(C), pages 91-115.
    2. Merl, Robert, 2022. "Literature review of experimental asset markets with insiders," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).
    3. Alexandra Hachmeister & Dirk Schiereck, 2010. "Dancing in the dark: post-trade anonymity, liquidity and informed trading," Review of Quantitative Finance and Accounting, Springer, vol. 34(2), pages 145-177, February.
    4. repec:grz:wpsses:2021-04 is not listed on IDEAS
    5. Grimstvedt Meling, Tom, 2017. "Anonymous trading in equities," Working Papers in Economics 7/17, University of Bergen, Department of Economics.
    6. Arzé Karam, 2022. "Dealers' incentives to reveal their names," The Financial Review, Eastern Finance Association, vol. 57(1), pages 27-44, February.

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