Advanced Search
MyIDEAS: Login to save this paper or follow this series

Liquidity, Volume, and Price Behavior: The Impact of Order vs. Quote Based Trading

Contents:

Author Info

  • Katya Malinova
  • Andreas Park

Abstract

We provide a three way theoretical comparison of dealer, limit order, and hybrid markets and analyze the impact that the organization of trading has on volume, liquidity, and price efficiency. We find, in particular, that trading volume is highest in the limit order market and lowest in the dealer market. Small order price impacts are lowest and large order price impacts are highest in limit order markets. Prices are most efficient in the hybrid market and least efficient in the dealer market, except when the level of informed trading is very high. Post-trade market transparency in a hybrid market hampers price efficiency for thinly traded securities. We further identify that traders behave as contrarians.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.economics.utoronto.ca/public/workingPapers/tecipa-358.pdf
File Function: Main Text
Download Restriction: no

Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-358.

as in new window
Length: 42 pages
Date of creation: 11 May 2009
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-358

Contact details of provider:
Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283

Related research

Keywords: liquidity; quote and order driven markets; price efficiency; hybrid markets; trading volume;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2002. "Order imbalance, liquidity, and market returns," Journal of Financial Economics, Elsevier, vol. 65(1), pages 111-130, July.
  2. Shino Takayama & Han Ozsoylev, 2005. "Price, Trade Size, and Information Revelation in Multi-Period Securities Markets," Finance 0510031, EconWPA.
  3. Sanford J. Grossman, . "The Informational Role of Upstairs and Downstairs Trading," Rodney L. White Center for Financial Research Working Papers 22-90, Wharton School Rodney L. White Center for Financial Research.
  4. Foucault, Thierry, 1999. "Order flow composition and trading costs in a dynamic limit order market1," Journal of Financial Markets, Elsevier, vol. 2(2), pages 99-134, May.
  5. Jong, F.C.J.M. de & Nijman, T.E. & Roell, A.A., 1993. "A comparison of the cost of trading French shares on the Paris Bourse and on SEAQ International," Discussion Paper 1993-29, Tilburg University, Center for Economic Research.
  6. Ananth N. Madhavan, . "Trading Mechanisms in Securities Markets," Rodney L. White Center for Financial Research Working Papers 16-90, Wharton School Rodney L. White Center for Financial Research.
  7. Easley, David & O'Hara, Maureen, 1987. "Price, trade size, and information in securities markets," Journal of Financial Economics, Elsevier, vol. 19(1), pages 69-90, September.
  8. Pagano, Marco & Roell, Ailsa, 1996. " Transparency and Liquidity: A Comparison of Auction and Dealer Markets with Informed Trading," Journal of Finance, American Finance Association, vol. 51(2), pages 579-611, June.
  9. Kerry Back & Shmuel Baruch, 2007. "Working Orders in Limit Order Markets and Floor Exchanges," Journal of Finance, American Finance Association, vol. 62(4), pages 1589-1621, 08.
  10. Glosten, Lawrence R, 1994. " Is the Electronic Open Limit Order Book Inevitable?," Journal of Finance, American Finance Association, vol. 49(4), pages 1127-61, September.
  11. Alevy, Jonathan E. & Haigh, Michael S. & List, John A., 2003. "Information Cascades: Evidence From A Field Experiment With Financial Market Professionals," Working Papers 28608, University of Maryland, Department of Agricultural and Resource Economics.
  12. Paul Milgrom & Nancy L.Stokey, 1979. "Information, Trade, and Common Knowledge," Discussion Papers 377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Seppi, Duane J, 1990. " Equilibrium Block Trading and Asymmetric Information," Journal of Finance, American Finance Association, vol. 45(1), pages 73-94, March.
  14. Parlour, Christine A, 1998. "Price Dynamics in Limit Order Markets," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 789-816.
  15. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  16. Ian Domowitz, 2002. "Liquidity, Transaction Costs, and Reintermediation in Electronic Markets," Journal of Financial Services Research, Springer, vol. 22(1), pages 141-157, August.
  17. Bessembinder, Hendrik, 2003. "Issues in assessing trade execution costs," Journal of Financial Markets, Elsevier, vol. 6(3), pages 233-257, May.
  18. Brian F. Smith, 2001. "Upstairs Market for Principal and Agency Trades: Analysis of Adverse Information and Price Effects," Journal of Finance, American Finance Association, vol. 56(5), pages 1723-1746, October.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:tor:tecipa:tecipa-358. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePEc Maintainer).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.