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| Author: | Theissen, E. |
| Title: | Trader anonymity, price formation and liquidity |
| Journal: | European Finance Review
2003 : VOL. 7:1, p. 1-26 |
| Index terms: | Bidding Liquidity Trading |
| Freeterms: | Anonymity Price formation |
| Language: | eng |
| Abstract: | Data from the Frankfurt Stock Exchange is used to analyze price formation and liquidity in a non-anonymous environment with similarities to the floor of the NYSE. The main hypothesis is that the non-anonymity allows the specialist to assess the probability that a trader trades on the basis of private information. She uses this knowledge to price discriminate. This can be achieved by quoting a large spread and granting price improvement to traders deemed uninformed. Consistent with the hypothesis it is found that price improvement reflects lower adverse selection costs but does not lead to a reduction in the specialist's profit. |
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