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Do networks in the stock exchange industry pay off? European evidence

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Author Info

  • Hasan, Iftekhar

    (Rennselaer Polytechnic Institute and Bank of Finland Research)

  • Schmiedel , Heiko

    (HWWA-Hamburg Institute of International Economics and Bank of Finland)

Abstract

The economic theory of network externalities provides the rationale for this paper, which investigates whether adoption of network strategies in European stock exchanges creates additional value in the provision of trading services. Using unbalanced panel data from all major European exchanges over the period 1996–2000, the paper examines empirically the presence of network effects on the liquidity, growth, and efficiency of the exchanges; the transaction cost of trades; and the cost of exchange operations. The evidence shows that adopting a network strategy is significantly associated with higher liquidity, growth and efficiency in the sample markets. Moreover, a network strategy helps to reduce transaction costs of trades as well as operational costs for stock exchanges.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0302.pdf
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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 2/2003.

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Length: 47 pages
Date of creation: 16 Jan 2003
Date of revision:
Handle: RePEc:hhs:bofrdp:2003_002

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: stock exchanges; network externalities; remote access; Europe;

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Citations

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Cited by:
  1. Guender, Alfred V., 2003. "Optimal discretionary monetary policy in the open economy: Choosing between CPI and domestic inflation as target variables," Research Discussion Papers 12/2003, Bank of Finland.
  2. Jukka Vauhkonen, 2004. "Banks' equity stakes in borrowing firms: A corporate finance approach," Game Theory and Information 0404003, EconWPA.
  3. Kaie Kerem & Vello Vensel, 2005. "Theory and Empirical Evidence of Business Support Networks," Working Papers 129, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
  4. Vello Vensel, 2004. "Operation of Business Supporting Networks: Evidence from an EU Candidate Country," Working Papers 117, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
  5. David T. Llewellyn & David G. Mayes, 2004. "The role of market discipline in handling problem banks," Finance 0404020, EconWPA.
  6. Baris Serifsoy & Marco Weiß, 2007. "Settling for Efficiency - A Framework for the European Securities Transactions Industry," Working Paper Series: Finance and Accounting 151, Department of Finance, Goethe University Frankfurt am Main.
  7. Jukka Vauhkonen, 2004. "Financial contracts and contingent control rights," Finance 0404022, EconWPA.

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