Term-Structure Analysis of Hidden Order in the Limit Order Book: Evidence from the E-Mini S&P 500
47 Pages Posted: 26 Oct 2016
Date Written: October 15, 2016
Abstract
The hidden order is currently increasingly popular as a standard feature of electronic limit order book markets. The invisible order allows traders to hide all, or partially hide their orders to avoid exposure to risk. I propose a new hidden order detection algorithm for the limit order book to investigate the impact of invisible orders on the market environment using E-mini S&P 500 data. The algorithm shows 43% all of the trade volume is involved with invisible liquidity. This work also finds that price impact decreases and market quality is improved with the presence of a hidden order both during high and low-frequency trading periods. I use this measure to study the association between hidden order and other observed market environments. The analysis finds aggressively hidden order activity when trading volume is increased.
Keywords: Hidden Order, Microstructure, Term-Structure
JEL Classification: G020, G140, G170
Suggested Citation: Suggested Citation