Hidden liquidity: An analysis of order exposure strategies in electronic stock markets

Hendrik Bessembinder, Marios Panayides, Kumar Venkataraman

Research output: Contribution to journalArticlepeer-review

66 Scopus citations


Many stock exchanges choose to reduce market transparency by allowing traders to hide some or all of their order size. We study the costs and benefits of order exposure and test hypotheses regarding hidden order usage using a sample of Euronext-Paris stocks, where hidden orders represent 44% of the sample order volume. Our results support the hypothesis that hidden orders are associated with a decreased probability of full execution and increased average time to completion, and fail to support the alternate hypothesis that order exposure causes defensive traders to withdraw from the market. However, exposing rather than hiding order size increases average execution costs. We assess the extent to which non-displayed size is truly hidden and document that the presence and magnitude of hidden orders can be predicted to a significant, but imperfect, degree based on observable order attributes, firm characteristics, and market conditions. Overall, the results indicate that the option to hide order size is valuable, in particular, to patient traders.

Original languageEnglish (US)
Pages (from-to)361-383
Number of pages23
JournalJournal of Financial Economics
Issue number3
StatePublished - Dec 1 2009
Externally publishedYes


  • Dark pools
  • Hidden liquidity
  • Iceberg orders
  • Limit order market
  • Trading strategies

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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