Empirical evidence on the evolution of liquidity: Choice of market versus limit orders by informed and uninformed traders

Order aggressiveness of institutional and individual investors

“…In contrast, uninformed investors are less aggressive early in the trading day and become more aggressive as the trading day comes to a close. Beber and Caglio (2005) offer empirical evidence supporting the prediction of Harris (1998) while Anand et al (2005) and Ellul et al (2007) document evidence consistent with the experimental finding of Bloomfield et al (2005).…”

“…Besides spread, market depth and volatility, we include a dummy variable for the first trading hour to examine the potential differences in the order aggressiveness of institutional and individual investors in the early part of the trading day, as suggested by Bloomfield et al (2005) and Anand et al (2005). The dummy variable for sell orders is included to control for potential asymmetry between buy and sell orders, as documented by Ranaldo (2004).…”

Sunshine Trading: Flashes of Trading Intent at the Nasdaq

“…Several papers show that voluntary disclosure reduces information asymmetry, which consequently reduces the cost of capital (Diamond and Verrecchia, 1991;Coller and Yohn, 1997) and facilitates externally financed firm growth (Khurana, Pereira, and Martin, 2006) and that voluntary disclosure of firm specific information allows better monitoring by investors and ensures that managers undertake optimal investments (Fama and Jensen, 1983;Diamond and Verrecchia, 1991;Bushman and Smith, 2001;Khurana et al, 2006). Consistent with this 8 Chakravarty and Holden (1995), Bae, Jang, and Park (2003), Anand, Chakravarty, and Martell (2005), and Ellul, Jain, Holden, and Jennings (2007) also study the choice between market and limit orders submissions.…”

Market Making, Liquidity Provision, and Attention Constraints: An Experimental Study

“…They are likely to use market orders (or marketable limit orders) reducing the level of market liquidity. 27 [39] and [44] extend the work of [41] to show that informed traders may become liquidity suppliers once their information advantage has been depleted (toward the end of the trading period). The dual role of informed traders as demanders and suppliers of liquidity is a common theme across these two studies.…”