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Price Discovery in Floor and Screen Trading Systems

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Author Info
Erik Theissen

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Abstract

We analyze price discovery in floor-based and electronic exchanges using data from the German stock market. We find that both markets contribute to price discovery. There is bidirectional Granger causality, and prices from both markets adjust to deviations from the long-run equilibrium. We use two different measures of the contributions to price discovery, the information share (Hasbrouck 1995) and the weights with which the series enter the common long memory component as defined by Gonzalo / Granger (1995). The contributions of the two trading systems to the process of price discovery are almost equal when transaction prices are used for the estimation. Models based on quote midpoints indicate that the electronic trading system has a larger share in the price discovery process. A cross-sectional analysis reveals that the contributions to price discovery are positively related to the market shares of the trading systems.

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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse35_2001.

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Length: 35
Date of creation: Aug 2001
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Handle: RePEc:bon:bonedp:bgse35_2001

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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Web page: http://www.bgse.uni-bonn.de/index.php?id=494

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Related research
Keywords: Floor versus screen trading Error correction Information shares Common long memory components

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G - Financial Economics

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Francis Breedon & Allison Holland, . "Electronic versus open outcry markets: The case of the Bund futures contract," Bank of England working papers 76, Bank of England. [Downloadable!]
  2. Ding, David K. & Harris, Frederick H. deB. & Lau, Sie Ting & McInish, Thomas H., 1999. "An investigation of price discovery in informationally-linked markets: equity trading in Malaysia and Singapore," Journal of Multinational Financial Management, Elsevier, vol. 9(3-4), pages 317-329, November. [Downloadable!] (restricted)
  3. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
  4. Thorsten Freihube & Erik Theissen, 2001. "An Index Is An Index Is An Index?," Schmalenbach Business Review (sbr), Wolfgang Ballwieser, Managing editor of sbr, LMU Munich School of Management, University of Munich, Ludwigstr. 28/RG, D-80539 Munich, Germany, vol. 53(4), pages 295-320, October. [Downloadable!]
  5. Gonzalo, Jesus & Granger, Clive W J, 1995. "Estimation of Common Long-Memory Components in Cointegrated Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 27-35, January.
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  6. Huang, Roger D. & Stoll, Hans R., 1996. "Dealer versus auction markets: A paired comparison of execution costs on NASDAQ and the NYSE," Journal of Financial Economics, Elsevier, vol. 41(3), pages 313-357, July. [Downloadable!] (restricted)
  7. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  8. THEISSEN, Erik, 1999. "Floor versus Screen Trading : Evidence from the German Stock Market," Les Cahiers de Recherche 690, Groupe HEC. [Downloadable!]
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  9. Kempf, Alexander & Korn, Olaf, 1998. "Trading System and Market Integration," Journal of Financial Intermediation, Elsevier, vol. 7(3), pages 220-239, July. [Downloadable!] (restricted)
  10. Martens, Martin, 1998. "Price discovery in high and low volatility periods: open outcry versus electronic trading," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(3-4), pages 243-260, December. [Downloadable!] (restricted)
  11. Grunbichler Andreas & Longstaff Francis A. & Schwartz Eduardo S., 1994. "Electronic Screen Trading and the Transmission of Information: An Empirical Examination," Journal of Financial Intermediation, Elsevier, vol. 3(2), pages 166-187, March. [Downloadable!] (restricted)
  12. Paul Kofman & James T. Moser, 1995. "Spreads, information flows and transparency across trading systems," Working Paper Series, Issues in Financial Regulation 95-1, Federal Reserve Bank of Chicago.
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  13. Stucki, Thomas & Wasserfallen, Walter, 1994. "Stock and option markets: the Swiss evidence," Journal of Banking & Finance, Elsevier, vol. 18(5), pages 881-893, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Erik Theissen, 2003. "Organized Equity Markets in Germany," CFS Working Paper Series 2003/17, Center for Financial Studies. [Downloadable!]
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