Market Transparency and Traders' Behavior : An Analysis on Euronext with Full Order Book Data

More and more order-driven markets now allow traders to submit hidden orders. This widespread practice results in the presence of quantities which are available in the limit order book but not disclosed to market participants. The main contribution of this paper is to show how this unobservable information affects traders' behavior. Extending previous empirical analyzes on order aggressiveness, we evidence that traders account not only for information displayed on the market screens but also for information they can infer from limit order book movements. The other contribution of this paper is to report large reductions in implicit transaction costs due to hidden depth available in the order book. Results are provided for 82 Euronext blue chips over a three-month period