The effect of anonymity on price efficiency: Evidence from the removal of broker identities

Title: The effect of anonymity on price efficiency: Evidence from the removal of broker identities
Creator: Duong, Huu Nhan; Lajbcygier, Paul; Lu, Jerry Shuai; Vu, Van Hoang
Relation: Pacific-Basin Finance Journal Vol. 51, p. 95-107
Publisher Link: http://dx.doi.org/10.1016/j.pacfin.2018.06.004
Publisher: Elsevier
Resource Type: journal article
Date: 2018
Description: We show that broker identities are important for price formation. We use the removal of broker identities by the ASX on November 28th 2005 as a natural experiment and compare the information signal of broker identities before and after its removal. We find that broker identities have significant information content, which reduces after the market becomes anonymous. The reduction in the information content of broker identities is larger during periods of high adverse selection costs, such as during days with price-sensitive corporate announcements. Overall, whilst anonymity may provide various ancillary benefits, our evidence suggests that removing broker identities reduces the informativeness of order flow and thus the anonymous market can be costly for uninformed investors.
Subject: broker identities; price discovery; anonymity; ASX
Identifier: http://hdl.handle.net/1959.13/1442306
Identifier: uon:41649
Identifier: ISSN:0927-538X
Language: eng
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