The effects of different anonymity regimes on liquidity at Nasdaq Nordic Exchanges
(2024) BUSN79 20241Department of Business Administration
- Abstract
- The purpose of this paper is to investigate the effect of various post-trade anonymity regimes on the liquidity of the Stockholm, Helsinki, and Copenhagen exchanges in 2014, 2019, 2020, and 2022. The theoretical perspectives used for this paper include information asymmetry, adverse selection, informational value of broker codes, trader dynamics under anonymity, order anticipation, and market maker dynamics. The study utilizes a unique quasi-natural setup to which a Difference-in-Differences technique is applied in order to estimate OLS regressions and evaluate the causal impact of post-trade anonymity on market liquidity. The regressions use Bid-ask Spread as the main dependent variable, but Turnover is also tested, with treatment and... (More)
- The purpose of this paper is to investigate the effect of various post-trade anonymity regimes on the liquidity of the Stockholm, Helsinki, and Copenhagen exchanges in 2014, 2019, 2020, and 2022. The theoretical perspectives used for this paper include information asymmetry, adverse selection, informational value of broker codes, trader dynamics under anonymity, order anticipation, and market maker dynamics. The study utilizes a unique quasi-natural setup to which a Difference-in-Differences technique is applied in order to estimate OLS regressions and evaluate the causal impact of post-trade anonymity on market liquidity. The regressions use Bid-ask Spread as the main dependent variable, but Turnover is also tested, with treatment and time indicators, as well as their interaction term, as the main explanatory variables. The empirical foundation consists of four unique anonymization regimes, introduced to different indexes in different years on the Nasdaq Nordic. The number of firms examined during our event ranges from 156 in 2014, to 988 in 2022. The number of observations ranges from 21,043 to 137,942.
The key takeaway from this paper is that the introduction of voluntary post-trade anonymity (vPoTA) and post-trade anonymity (PoTA) yielded mixed results. The introduction of vPoTA in 2014 indicated no statistically significant results. Moreover, the incremental move from vPoTa to PoTA did not significantly improve liquidity in 2019 or 2020. Lastly, the move from complete transparency to PoTA in 2022 showed highly statistically significant results: Bid-ask Spreads decreased by an average of 10.2% while Turnover increased by 15.3%, on average, for the Mid-cap, Small-cap, and First North Index. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9165437
- author
- Elmlund, Adrian LU and Ahl, Hannes LU
- supervisor
- organization
- alternative title
- Does anonymization increase market quality?
- course
- BUSN79 20241
- year
- 2024
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Liquidity, Market Quality, Post-trade anonymity (PoTA), Voluntary Post-trade Anonymity (vPoTA), Adverse Selection
- language
- English
- id
- 9165437
- date added to LUP
- 2024-06-22 16:47:18
- date last changed
- 2024-06-22 16:47:18
@misc{9165437, abstract = {{The purpose of this paper is to investigate the effect of various post-trade anonymity regimes on the liquidity of the Stockholm, Helsinki, and Copenhagen exchanges in 2014, 2019, 2020, and 2022. The theoretical perspectives used for this paper include information asymmetry, adverse selection, informational value of broker codes, trader dynamics under anonymity, order anticipation, and market maker dynamics. The study utilizes a unique quasi-natural setup to which a Difference-in-Differences technique is applied in order to estimate OLS regressions and evaluate the causal impact of post-trade anonymity on market liquidity. The regressions use Bid-ask Spread as the main dependent variable, but Turnover is also tested, with treatment and time indicators, as well as their interaction term, as the main explanatory variables. The empirical foundation consists of four unique anonymization regimes, introduced to different indexes in different years on the Nasdaq Nordic. The number of firms examined during our event ranges from 156 in 2014, to 988 in 2022. The number of observations ranges from 21,043 to 137,942. The key takeaway from this paper is that the introduction of voluntary post-trade anonymity (vPoTA) and post-trade anonymity (PoTA) yielded mixed results. The introduction of vPoTA in 2014 indicated no statistically significant results. Moreover, the incremental move from vPoTa to PoTA did not significantly improve liquidity in 2019 or 2020. Lastly, the move from complete transparency to PoTA in 2022 showed highly statistically significant results: Bid-ask Spreads decreased by an average of 10.2% while Turnover increased by 15.3%, on average, for the Mid-cap, Small-cap, and First North Index.}}, author = {{Elmlund, Adrian and Ahl, Hannes}}, language = {{eng}}, note = {{Student Paper}}, title = {{The effects of different anonymity regimes on liquidity at Nasdaq Nordic Exchanges}}, year = {{2024}}, }