Does Trading Anonymously Enhance Liquidity?

Patrick J. Dennis, Patrik Sandds
2014 Social Science Research Network  
Anonymous trading is the norm in today's financial markets but there are a few exceptions. We study one such case, the OMX Nordic Exchanges (Stockholm, Helsinki, Copenhagen, and Reykjavik) that have traditionally been more transparent than most other equity markets. On June 2, 2008 OMX Nordic switched to making post-trade reporting anonymous for some of their markets. We exploit this quasi-natural experiment to investigate the impact this change had on liquidity and trading behavior. We apply
more » ... ehavior. We apply propensity score matching techniques and document a statistically and economically significant decline of 50 basis points in quoted spreads for the anonymously traded stocks. The quoted spreads widened overall in the summer of 2008, but, they widened significantly less (approximately -20% less) for the stocks that were part of the switch to post trade anonymity. That difference was particularly strong for large firms and firms with less concentrated trading. JEL Classifications:
doi:10.2139/ssrn.2564015 fatcat:zhfydzstzfeohgmvpfhf2fum2e