Cover Image

The impact of iceberg orders in limit order books

We examine the impact of iceberg orders on the price and order flow dynamics in limit order books. Iceberg orders allow traders to simultaneously hide a large portion of their order size and signal their interest in trading to the market. We show that when the market learns about iceberg orders they tend to strongly attract market orders consistent with iceberg orders facilitating the search for latent liquidity. The greater the fraction of an iceberg order that is executed the smaller its price impact consistent with liquidity rather than informed trading. The presence of iceberg orders is associated with increased trading consistent with a positive liquidity externality, but the reduced order book transparency associated with iceberg orders also creates an adverse selection cost for limit orders that may partly offset any gains.
Year of publication:
2009
Authors: Frey, Stefan ; Sandås, Patrik
Publisher: Cologne : Centre for Financial Research
Subject: Wertpapierhandel | Marktliquidität | Börsenumsatz | Mikrostrukturanalyse | Theorie | Hidden Liquidity | Iceberg Orders | Limit Order Markets | Transparency
Full text |
Series:
Type of publication: Book / Working Paper
Type of publication (narrower categories): Working Paper
Language: English
Other identifiers:
605038759 [GVK]
hdl:10419/41392 [Handle]
RePEc:zbw:cfrwps:0906 [RePEc]
Classification: G10 - General Financial Markets. General ; G14 - Information and Market Efficiency; Event Studies
Source:
Similar items by subject
Similar items by person