Presented By-Yasha Singh

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Examine how publicly revealing information aboutthe limit-order book affects investors tradingstrategies , the way prices evolve in response to orderflow, and the resulting state of liquidity in themarket.

Investigation of pre-trade transparency, defined asthe availability of information about quotes andtrading interest.

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Data used is a pre-event data (i.e. 2 weeks before24th Jan’2002) and post-event data.

Trading strategies :• First look at how market participants change their trading

strategies as a result of the event.• Examine how these strategies affect the informational efficiency

of prices by looking at the deviations of transaction prices fromthe efficient price and the autocorrelation of quote-midpointreturn.

• Change in the liquidity.

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For doing this stock specific mean is calculated forall variables.

Median across stocks of pair wise differencesbetween each post-event period and the pre-eventperiod.

p-value is calculated using wilcoxon test against twoside hypothesis that the median is equal to zero.

Semi parametric Cox regression is done .• Logarithm of the hazard rate(rate of occurrence of failures) is

modeled as a linear function of an intercept.

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Information and prices:• The first test is based on the variance decomposition procedure.• Vector auto regression model is used to separate the efficient

price from the deviation introduced by trading process(e.g.short-term fluctuations in the prices due to inventory control ororder imbalances in the market).

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Investors do not change their strategies in responseto the change in the market design.

Open book enables traders to implement morecomplex strategies.

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Pre-trade transparency is a win-win situation.

Greater transparency would improve liquidity.

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