Hide-and-Seek in the Market : Placing and Detecting Hidden Orders

This paper investigates why traders hide their orders and how other traders respond to the detection of hidden depth.

Author(s) :

Rudy De Winne

School of Management and FUCaM

Catherine D'Hondt

EDHEC Business School

Presentation :

Using a logit model, we provide empirical findings suggesting that traders use hidden orders to manage both exposure risk and picking off risk. Using probit models, we show that the detection of hidden depth increases order aggressiveness. Our interpretation of this empirical evidence is threefold. First, hidden depth detection is possible and frequent. Second, when traders detect hidden volume at the best opposite quote, they strategically adjust their order submission to seize the opportunity for depth improvement. Third, traders' response when hidden depth is discovered suggests either that they do not associate hidden orders with informed trading or that the risk of trading with an informed trader is widely offset by the opportunity for depth improvement.
Pdf
Hide-and-Seek in the Market : Placing and Detecting Hidden Orders...
(1.27 MB)
Type : Working paper
Date : le 04/10/2007
Extra information : Pour plus d'informations, nous vous prions de vous adresser à Joanne Finlay, Direction de la recherche de l'EDHEC [ joanne.finlay@edhec.edu ] Les opinions exprimées sont celles des auteurs et n'engagent pas la responsabilité de l'EDHEC.
Research Cluster : Finance

See Also

- 06-04-2017
This week, to bring current and future challenges facing leaders directly to the classroom, the EDHEC Global MBA launches two 18-hour core courses devised and taught in collaboration with...
- 04-04-2017
The distinctive Multirank assessment ranks 1,500 prestigious schools and universities worldwide, including 74 French institutions.  EDHEC stands out in 2017 as the French business...
Frédéric Oudéa, Chief Executive Officer of Société Générale, meets EDHEC students
- 31-03-2017
Société Générale is one of the 3 banks in France’s CAC 40 stock index. The bank’s Chief...
- 30-03-2017
Close to 900 people attended the 9th edition of EDHEC Research Day held on Tuesday, 14 March 2017 on the EDHEC Lille Campus. We are very grateful for your interest and your role in the...