We investigate exchange-based hidden orders from an information perspective. We test several hypotheses, document evidence on a spectrum of issues, and provide several conclusions in this context. First, traders with higher information levels are significantly more likely to hide a larger proportion of trades. Second, informed trader categories that submit hidden orders make significantly greater economic profits than those that do not; while, in contrast, uninformed trader categories make significantly lower economic profits when they submit hidden orders. Finally, relative to other periods, informed trader categories submit more hidden orders in the five days before and after earnings announcements (an information-intensive period), while uninformed trader categories do not change their hidden order submission strategies around earnings announcements. Overall, we present overwhelming evidence linking informed traders with pre-trade opacity.
|Journal||2017 Emerging Markets Finance ConferenceMumbai|