Liquidity, volume and price efficiency: The impact of order vs. quote driven trading
AbstractAs equity trading becomes predominantly electronic, is there still value to a traditional, intermediated dealer system? We address this question by comparing the impact of the organization of trading on volume, liquidity, and price efficiency in a quote-driven dealer market and in an order-driven limit order book. Small order price impacts are higher and large order price impacts are lower in a dealer market. Prices are more efficient in the limit order book, except when the level of informed trading is high. Volume is higher in a limit order market, making this system most attractive for trading venues.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Markets.
Volume (Year): 16 (2013)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/finmar
Order and quote driven trading; Hybrid markets; Execution costs; Price efficiency; Liquidity;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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