Dividing the Pie
AbstractWe examine the consequences of transparency in an experimentalmultiple-dealer market with asymmetrically informed dealers. Fiveprofessional securities traders make a market for a single security.In each trading round, one of the dealers (the "insider") is told thesecurity's true value. We vary both pre-trade and post-tradetransparency by changing the way quote and trade information ispublished. The insider's profits are greatest when price efficiency islowest. Price efficiency, in turn, is reduced by pre-tradetransparency and increased by posttrade transparency. Marketliquidity, measured by dealers' bid-ask spreads, is improved bypre-trade transparency and reduced by post-trade transparency.
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Bibliographic InfoPaper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2002-101-F&A.
Date of creation: 29 Oct 2002
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financial markets; information asymmetry; market microstructure; experimental economics;
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