Canceled Orders and Executed Hidden Orders

Abstract

This article examines the determinants of canceled orders and hidden orders and the effects of canceled orders and hidden orders on market quality. The authors find that effective spread, market capitalization, stock volatility, order volume, odd-lots, and hidden orders are determinants of canceled orders, while effective spread, odd-lots, and stock volatility are determinants of hidden orders. However, the determinants of canceled orders and the determinants of hidden orders are not consistent across exchanges. More canceled orders and hidden orders will result in higher effective and quoted spreads. The effect of canceled orders and hidden orders on depth depends on how depth is measured.