Impact of anonymity on liquidity in limit order books: evidence from cross-listed stocks

This paper examines anonymity effects on liquidity migration of cross-listed stocks using a natural experiment created by the staggered move to anonymity regime undertaken by ASX and NZX. The 2SLS instrumental variable estimation shows two interesting trends. When considering liquidity impact on cross-listed stocks after ASX switched to anonymous trading, bid-ask spreads, quoted depth and trading volume improve on ASX, but deteriorate on NZX. On the other hand, when considering NZX’s adoption of anonymous trading, liquidity decreases on ASX, but increases on NZX. Consistent with our hypothesis, anonymity attracts the trading of cross-listed stocks from the foreign counterparty. Results also suggest the existence of commonality in liquidity in financial markets, and the inclusion of this commonality in natural experiment studies may be necessary