An international trend in market design: Endogenous effects of limit order book transparency on volatility, spreads, depth and volume
journal contribution
posted on 2023-05-17, 20:52authored byPham, TP, Westerholm, PJ
Following other leading international securities markets, the Tokyo Stock Exchange (TSE) has adopted a publicly displayed but anonymous limit order book, and we ask: how is market quality afected? Accountng for fixed effects and endogeneity, we find increased volatility and higher order book depth at the best bid and ask prices, while total depth is not significantly impacted. This predicts more competitive order strategies in a trading system with anonymous orders but with more visible price levels. Spreads are found to be unaffected by the market design change, in contradiction to previous literature. Complementing the literature, we find volume increases, indicatng that the aggregate effect of the design change is positive.
History
Publication title
Journal of International Financial Markets, Institutions and Money