Market Transparency, Market Quality and Sunshine Trading
AbstractThis paper analyzes the implications of pre-trade transpareny on market performance. We find that transparency increases the precision held by agents, however we show that this increase in precision may not be due to prices themselves. In competitive markets, transparency increases market liquidity and reduces price volatility, whereas these results may not hold under imperfect competition. More importantly, market depth and volatility might be positively related with proper priors. Moreover, we study the incentives for liquidity traders to engage in sunshine trading. We obtain that the choice of sunshine/dark trading for a noise trader is independent of his order size, being the traders with higher liquidity needs more interested in sunshine trading, as long as this practice is desirable. Key words: Market Microstructure, Transparency, Prior Information, Market Quality, Sunshine Trading
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Bibliographic InfoPaper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/211882.
Date of creation: 2013
Date of revision:
Mercats financers; Informació -- Aspectes econòmics; 33 - Economia;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
- NEP-CTA-2013-06-16 (Contract Theory & Applications)
- NEP-MST-2013-06-16 (Market Microstructure)
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