English, Article, Journal or magazine article edition: Trader Anonymity, Price Formation and Liquidity THIESSEN, Eric

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Bookmark: http://trove.nla.gov.au/version/23157
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Trader Anonymity, Price Formation and Liquidity
Author
  • THIESSEN, Eric
Physical Description
  • preprint
Notes
  • We analyze price formation and liquidity in a non-anonymous specialist market. Our main hypothesis is that the non-anonymity allows the specialist to assess the probability that a trader trades on the basis of private information. He uses this knowledge to price discriminate. This can be achieved by quoting a large spread and granting price improvement to traders deemed uninformed. Our empirical results confirm this view. We document that price improvement reflects lower adverse selection costs but does not lead to a reduction in the specialist's profit. We further show that the quote adjustment following transactions at the quoted prices is more pronounced than the quote adjustment after transactions at prices inside the spread. The results thus support the notion that a non-anonymous environment allows the identification of informed traders and may thus alleviate the adverse selection problem.
  • Anonymity; specialist; bid-ask spread
  • RePEc:ebg:heccah:0701
Language
  • English
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