The Impact of Large Orders in Electronic Markets
|Title||The Impact of Large Orders in Electronic Markets|
|Publication Type||Working Paper|
|Year of Publication||2015|
|Authors||L. Bosetti, P. Gottardo, M. Murgia, A. Pinna|
|ISBN Number||978 88 8467 940 6|
|Keywords||Block trading, Dark Pool, Electronic exchange, Large Orders, Liquidity, Price Impact, Upstairs market|
We examine both displayed and non-displayed orders sent by all investors to the electronic central limit order book of the Italian stock exchange Borsa Italiana (BI) in 2005, after stocks recovered from the dot-com burst and before the run-up to the financial crisis. Extant literature relies on trades as basic level of observation for the lack of data. Our unique dataset enables us to re- construct the evolution of the order book and trades over time. Trading costs are lower than in any other exchange analysed in the past. Rules on over-the-counter trading allow us to measure the economic impact of market fragmentation. Contrarily to the existing literature, we observe price impacts are lower in the electronic downstairs market than in the upstairs market. We explain our results in terms of exchange trading architecture.