Incorporation of Hidden Orders into Assessment of Liquidity Risk in Russian Stock Market

Student: Luzina Ekaterina

Supervisor: Marat Z. Kurbangaleev

Educational Programme: Financial Markets and Financial Institutions (Master)

Year of Graduation: 2020

Moscow Exchange provides its participants with an opportunity to partially hide the initial volume of the order through placing icebergs. It results in an informational asymmetry that affects the market and its participants' behavior. The more important, it distorts the assessment of the liquidity risk. The detection of hidden volume algorithm was developed to analyze the features of using icebergs, their impact on liquidity metrics and liquidity risk. Using this algorithm more than 50 thousand icebergs were found on the intraday data for the period from March 4, 2019 to March 29, 2019. According to the results, the distribution of icebergs follows the general rule for all limit orders - the more liquid the market is, the higher the concentration and the average volume of icebergs are. The results also showed that the use of iceberg leads to the significant deviation of the estimated value of the depth from the actual one. As a result, the assessment of liquidity risk is distorted.

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