Revisiting the stealth trading hypothesis: does time-varying liquidity explain the size-effect?

  • Large trades have a smaller price impact per share than medium-sized trades. So far, the literature has attributed this effect to the informational content of trades. In this paper, we show that this effect can arise from strategic order placement. We introduce the concept of a liquidity elasticity, measuring the responsiveness of liquidity demand with respect to changes in liquidity supply, as a major driver for a declining price impact per share. Empirical evidence based on Nasdaq stocks strongly supports theoretical predictions and shows that the aspect of liquidity coordination is an important complement to rationales based on asymmetric information.

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Author:Gökhan Cebiroglu, Nikolaus Hautsch, Christopher Walsh
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 625
Series (Serial Number):CFS working paper series (625)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Year of Completion:2019
Year of first Publication:2019
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2019/09/03
Tag:limit order book; liquidity elasticity; price impact; stealth trading
Issue:July 18, 2019
Page Number:58
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht