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Missing markets. Microstructure and liquidity on the London Stock Exchange

Author

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  • Esteves, Rui
  • Mesevage, Gabriel Geisler

Abstract

This paper studies the behavior of specialist dealers operating in the London Stock Exchange in the 1870s. The LSE was a free-entry exclusive dealers market, where dealers were free to choose which securities to deal in. We show that dealers concentrated their market making in the most liquid securities. A combination of adverse selection and inventory costs prevented the development of liquid markets in most securities, with dealers opting instead to provide matchmaking services. Our results call for a reappreciation of the liquidity of the London market and offer a new interpretation of stylized facts about the Victorian investor behavior.

Suggested Citation

  • Esteves, Rui & Mesevage, Gabriel Geisler, 2026. "Missing markets. Microstructure and liquidity on the London Stock Exchange," Explorations in Economic History, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:exehis:v:99:y:2026:i:c:s001449832500083x
    DOI: 10.1016/j.eeh.2025.101736
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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