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Information sharing, liquidity and transaction costs in floor-based trading systems

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Author Info
FOUCAULT, Thierry
LESCOURRET, Laurence (CREST)

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Abstract

We consider information sharing between traders("floor brokers") who possess different types of information, namely information on the payoff of a risky security or information on the volume of liquidity trading in this security. We interpret these traders as dual -capacity brokers on the floor of an exchange. We identify conditions under which the traders are better off sharing information. We also show that information sharing improves price discovery, reduces volatility and lowers expected trading costs. Information sharing can improve or impair the depth of the market, depending on the values of the parameters. Overall our analysis suggests that information sharing among floor brokers improves the performance of floor-based trading systems.

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File URL: http://www.hec.fr/var/fre/storage/original/application/9935675c0158a25b3d4d603e6f527134.pdf
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Publisher Info
Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 742.

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Length: 41 pages
Date of creation: 01 Nov 2001
Date of revision:
Handle: RePEc:ebg:heccah:0742

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Postal: HEC Paris, 78351 Jouy-en-Josas cedex, France
Web page: http://www.hec.fr/
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Related research
Keywords: market microstructure; floor-based trading systems; open outcry; information sharing; information sales;

Other versions of this item:

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

This paper has been announced in the following NEP Reports:

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. Admati, Anat R & Pfleiderer, Paul, 1988. "Selling and Trading on Information in Financial Markets," American Economic Review, American Economic Association, vol. 78(2), pages 96-103, May. [Downloadable!] (restricted)
  2. Allen, Franklin, 1990. "The market for information and the origin of financial intermediation," Journal of Financial Intermediation, Elsevier, vol. 1(1), pages 3-30, March. [Downloadable!] (restricted)
  3. Fishman, Michael J & Longstaff, Francis A, 1992. " Dual Trading in Futures Markets," Journal of Finance, American Finance Association, vol. 47(2), pages 643-71, June. [Downloadable!] (restricted)
  4. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November. [Downloadable!] (restricted)
  5. Bhattacharya, Sudipto & Pfleiderer, Paul, 1985. "Delegated portfolio management," Journal of Economic Theory, Elsevier, vol. 36(1), pages 1-25, June. [Downloadable!] (restricted)
  6. Griffiths, Mark D. & Smith, Brian F. & Turnbull, D. Alasdair S. & White, Robert W., 1998. "Information flows and open outcry: evidence of imitation trading," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(2), pages 101-116, June. [Downloadable!] (restricted)
  7. Chakravarty, Sugato & Sarkar, Asani, 2002. "A model of broker's trading, with applications to order flow internalization," Review of Financial Economics, Elsevier, vol. 11(1), pages 19-36. [Downloadable!] (restricted)
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  8. Fishman M. J. & Hagerty K. M., 1995. "The Incentive to Sell Financial Market Information," Journal of Financial Intermediation, Elsevier, vol. 4(2), pages 95-115, April. [Downloadable!] (restricted)
  9. Sofianos, George & Werner, Ingrid M., 2000. "The trades of NYSE floor brokers," Journal of Financial Markets, Elsevier, vol. 3(2), pages 139-176, May. [Downloadable!] (restricted)
  10. THEISSEN, Erik, 1999. "Floor versus Screen Trading : Evidence from the German Stock Market," Les Cahiers de Recherche 690, HEC Paris. [Downloadable!]
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  11. Sarkar Asani, 1995. "Dual Trading: Winners, Losers, and Market Impact," Journal of Financial Intermediation, Elsevier, vol. 4(1), pages 77-93, January. [Downloadable!] (restricted)
  12. Benabou, Roland & Laroque, Guy, 1992. "Using Privileged Information to Manipulate Markets: Insiders, Gurus, and Credibility," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 921-58, August. [Downloadable!] (restricted)
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  13. Xavier Vives, 1992. "The Speed of Information Revelation in a Financial Market Mechanism," CEPR Financial Markets Paper 0016, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 53--56 Great Sutton Street, London EC1V 0DG.
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  14. 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.
    Other versions:
  15. Madhavan, A., 1991. "Security Prices and Market Transparency," Weiss Center Working Papers 1-92, Wharton School - Weiss Center for International Financial Research.
    Other versions:
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