Limit Order Book Transparency and Investor Behaviors: Evidence from Institutions and Individuals

This paper investigates the impact of order book transparency on investors ' behaviors. Our focus is to analyze whether institutions and/or individuals are able to make use of the information content from an open limit book. The data from Taiwan stock exchange allow us to trace the investors ’ accounts and therefore, provide us a unique opportunity to analyze how investors adjust their order placement strategies after the increase of a transparent limit order book. This findings show that limit order book transparency does affect the order placements of investors, in particular for foreign investors, implying that foreign investors are more aware of the limit order information. Furthermore, we find that foreign investors become more aggressive in a transparent market by enjoying the aggregation ability of limit order book information. The findings of our study shed some light on experiment economics/ information aggregations.