Verousis, Thanos and ap Gwilym, Owain (2014) The implications of a price anchoring effect at the upstairs market of the London Stock Exchange. International Review of Financial Analysis, 32. pp. 37-46. DOI https://doi.org/10.1016/j.irfa.2013.12.001
Verousis, Thanos and ap Gwilym, Owain (2014) The implications of a price anchoring effect at the upstairs market of the London Stock Exchange. International Review of Financial Analysis, 32. pp. 37-46. DOI https://doi.org/10.1016/j.irfa.2013.12.001
Verousis, Thanos and ap Gwilym, Owain (2014) The implications of a price anchoring effect at the upstairs market of the London Stock Exchange. International Review of Financial Analysis, 32. pp. 37-46. DOI https://doi.org/10.1016/j.irfa.2013.12.001
Abstract
This paper studies the upstairs market of the Stock Exchange Trading System (SETS) of the London Stock Exchange (LSE). We hypothesise that the implicit interaction between the upstairs and the downstairs markets at the LSE alters the pricing mechanism at the upstairs market. We show that market makers employ “cluster undercutting” practices in the upstairs market, which are based on a notional minimum price increment and resemble an anchoring-and-adjustment effect. In particular, we report that liquidity providers consistently buy just below the implicit minimum price increment and consistently sell just above it. This finding is strongly related to stock-price momentum and periods of increased trade intensity. Overall, this effect has only a weak connection to differences in informed trading and is mostly related to the notional price barriers and resistance levels introduced by the minimum tick size of the order book.
Item Type: | Article |
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Uncontrolled Keywords: | Informed trading; Microstructure; Upstairs market; LSE; High-frequency data |
Subjects: | H Social Sciences > HG Finance |
Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Essex Business School |
SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
Depositing User: | Unnamed user with email elements@essex.ac.uk |
Date Deposited: | 14 Mar 2019 19:57 |
Last Modified: | 16 May 2024 19:33 |
URI: | http://repository.essex.ac.uk/id/eprint/24182 |
Available files
Filename: Price anchoring.pdf