Year: 1995
Author: Gerke, Wolfgang, Bienert, Horst, Schroeder-Wildberg, Uwe
Credit and Capital Markets – Kredit und Kapital, Vol. 28 (1995), Iss. 2 : pp. 227–269
Abstract
Order Book Transparency under Homogeneous Information - An Experimental Study
This paper reports the results of 20 computerized market experiments that examine the effect of three different degrees of order book visibility in a continuous auction- type market for fictitious stocks. Traders’ knowledge of the order book is varied between complete ignorance, knowledge of the bid-ask spread without volume information and full knowledge of the first five steps of the order book. With knowledge of the order book, traders can assess the probability of execution and the prospective transaction price of a given order more easily. At the same time, the visibility of the order book creates a competition for holding the market bid or ask. Consequently, the observed price limits are closer to the opposite side of the book in the experiments with a transparent market. The proportion of non-transacting orders decreases. On the market level, these changes in the order flow result in a decrease in excess volatility. However, this does not improve the quality of prices, as measured by the correlation between prices and intrinsic values. The average bid-ask spread narrows much faster in both versions with a visible order book.
Journal Article Details
Publisher Name: Global Science Press
Language: Multiple languages
DOI: https://doi.org/10.3790/ccm.28.2.227
Credit and Capital Markets – Kredit und Kapital, Vol. 28 (1995), Iss. 2 : pp. 227–269
Published online: 1995-02
AMS Subject Headings: Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 43
Author Details
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