IDEAS home Printed from https://ideas.repec.org/a/bla/jfinan/v60y2005i3p1567-1590.html
   My bibliography  Save this article

A Comparison of Centralized and Fragmented Markets with Costly Search

Author

Listed:
  • XIANGKANG YIN

Abstract

How does quotation transparency affect financial market performance? Biais's irrelevance proposition in 1993 shows that centralized markets yield the same expected bid–ask spreads as fragmented markets, other things equal. However, de Frutos and Manzano demonstrated in 2002 that expected spreads in fragmented markets are smaller and market participants prefer to trade in fragmented markets. This paper introduces liquidity traders' costs of searching for a better quote into the Biais model and derives opposite conclusions to these previous studies: expected spreads in centralized markets are smaller and liquidity traders prefer centralized markets, while market makers prefer fragmented markets.

Suggested Citation

  • Xiangkang Yin, 2005. "A Comparison of Centralized and Fragmented Markets with Costly Search," Journal of Finance, American Finance Association, vol. 60(3), pages 1567-1590, June.
    • Handle: RePEc:bla:jfinan:v:60:y:2005:i:3:p:1567-1590
    DOI: 10.1111/j.1540-6261.2005.00770.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1540-6261.2005.00770.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1540-6261.2005.00770.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dr. Andrada Bilan & Yalin Gündüz, 2022. "CDS market structure and bond spreads," Working Papers 2022-09, Swiss National Bank.
    2. Menkveld, Albert J., 2008. "Splitting orders in overlapping markets: A study of cross-listed stocks," Journal of Financial Intermediation, Elsevier, vol. 17(2), pages 145-174, April.
    3. repec:uts:finphd:39 is not listed on IDEAS
    4. Marta Khomyn, 2020. "Essays on Modern Market Structure," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2020.
    5. Daures-Lescourret, Laurence & Moinas, Sophie, 2023. "Fragmentation and Strategic Market-Making," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 58(4), pages 1675-1700, June.
    6. He, Yinghua & Nielsson, Ulf & Guo, Hong & Yang, Jiong, 2014. "Subscribing to transparency," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 189-206.
    7. Ramiro Losada López, 2010. "On the role of transparency in the ABS secondary market," CNMV Working Papers CNMV Working Papers no. 3, CNMV- Spanish Securities Markets Commission - Research and Statistics Department.
    8. Pham, Thu Phuong & Westerholm, P. Joakim, 2013. "A survey of research into broker identity and limit order book," Working Papers 17212, University of Tasmania, Tasmanian School of Business and Economics, revised 16 Oct 2013.
    9. Olfa Berrich & Halim Dabbou, 2023. "Tunisian corporate bond market liquidity: a qualitative approach," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 15(5), pages 795-819, February.
    10. Allen, Linda & Gottesman, Aron A. & Peng, Lin, 2012. "The impact of joint participation on liquidity in equity and syndicated bank loan markets," Journal of Financial Intermediation, Elsevier, vol. 21(1), pages 50-78.
    11. Lescourret, Laurence & Robert, Christian Y., 2011. "Transparency matters: Price formation in the presence of order preferencing," Journal of Financial Markets, Elsevier, vol. 14(2), pages 227-258, May.
    12. Paulo Pereira Silva, 2018. "Fragmentation and Market Quality: The Case of European Markets," De Economist, Springer, vol. 166(2), pages 179-206, June.
    13. Comerton-Forde, Carole & Putniņš, Tālis J., 2015. "Dark trading and price discovery," Journal of Financial Economics, Elsevier, vol. 118(1), pages 70-92.
    14. Fei Su, 2018. "Essays on Price Discovery and Volatility Dynamics in the Foreign Exchange Market," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2018.
    15. Zhuo Zhong & Kei Kawakami, 2016. "The Risk Sharing BenefiÂ…t versus the Collateral Cost: The Formation of the Inter-Dealer Network in Over-the-Counter Trading," 2016 Meeting Papers 822, Society for Economic Dynamics.
    16. Su, Fei & Zhang, Jingjing, 2018. "Global price discovery in the Australian dollar market and its determinants," Pacific-Basin Finance Journal, Elsevier, vol. 48(C), pages 35-55.
    17. Paulo Pereira da Silva & Carlos Vieira & Isabel Vieira, 2018. "Central clearing and CDS market quality," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(6), pages 731-753, June.
    18. repec:uts:finphd:38 is not listed on IDEAS
    19. Zhong, Zhuo, 2016. "Reducing opacity in over-the-counter markets," Journal of Financial Markets, Elsevier, vol. 27(C), pages 1-27.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:60:y:2005:i:3:p:1567-1590. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/afaaaea.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.