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Quote Disclosure and Price Discovery in Multiple-Dealer Financial Markets

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  • Flood, Mark D, et al
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    Abstract

    We examine the effects of price disclosure on market performance in a continuous experimental multiple-dealer market in which seven professional market makers trade a single security. The dealers trade with one another and with computerized informed and liquidity traders. Our key comparison is between fully public price queues (pretrade transparent market) and bilateral quoting (pretrade opaque). We find that opening spreads are wider and trading volume is lower in the opaque markets due to higher search costs there. More importantly, however, higher search costs also induce more aggressive pricing strategies, so that price discovery is much faster in the opaque markets. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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    Bibliographic Info

    Article provided by Society for Financial Studies in its journal Review of Financial Studies.

    Volume (Year): 12 (1999)
    Issue (Month): 1 ()
    Pages: 37-59

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    Handle: RePEc:oup:rfinst:v:12:y:1999:i:1:p:37-59

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    Cited by:
    1. Chung, Kee H. & Chuwonganant, Chairat, 2009. "Transparency and market quality: Evidence from SuperMontage," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 93-111, January.
    2. Easley, David & Hendershott, Terrence & Ramadorai, Tarun, 2014. "Leveling the trading field," Journal of Financial Markets, Elsevier, vol. 17(C), pages 65-93.
    3. Ryan Davies, 2000. "Registered trader participation during the Toronto Stock Exchange's pre-opening session," Working Papers 997, Queen's University, Department of Economics.
    4. Osler, Carol & Mende, Alexander & Menkhoff, Lukas, 2006. "Price Discovery in Currency Markets," Hannover Economic Papers (HEP) dp-351, Leibniz Universit├Ąt Hannover, Wirtschaftswissenschaftliche Fakult├Ąt.
    5. Natasha Khan, 2007. "Impact of Electronic Trading Platforms on the Brokered Interdealer Market for Government of Canada Benchmark Bonds," Working Papers 07-5, Bank of Canada.
    6. de Jong, Cyriel & Koedijk, Kees & Schnitzlein, Charles, 2002. "Stock Market Quality in the Prescence of a Traded Option," CEPR Discussion Papers 3173, C.E.P.R. Discussion Papers.
    7. Moez Bennouri & C. Clark & Jacques Robert, 2010. "Information provision in financial markets," Annals of Finance, Springer, vol. 6(2), pages 255-286, March.
    8. Ding, Liang & Hiltrop, Jonas, 2010. "The electronic trading systems and bid-ask spreads in the foreign exchange market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(4), pages 323-345, October.
    9. Pham, Thu Phuong & Westerholm, P. Joakim, 2013. "A survey of research into broker identity and limit order book," Working Papers 17212, University of Tasmania, School of Economics and Finance, revised 16 Oct 2013.
    10. Nicolas Audet & Toni Gravelle & Jing Yang, 2002. "Alternative Trading Systems: Does One Shoe Fit All?," Working Papers 02-33, Bank of Canada.
    11. Xinyang Li & Andreas Krause, 2010. "Determining the optimal market structure using near-zero intelligence traders," Journal of Economic Interaction and Coordination, Springer, vol. 5(2), pages 155-167, December.

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