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Price Manipulation in Parallel Markets with Different Transparency

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  • F. Drudi

    (European Central Bank and INSEAD)

Abstract

We provide a unique test of trading behavior under asymmetric information with parallel markets characterized by different degrees of transparency for the same asset. We consider the Treasury bond market and show that the informed dealers simultaneously place bids in the primary market and sell in the secondary market, repurchasing when the primary market closes. Price manipulation increases market depth in the more transparent market when the more opaque market is open. This supports the experimental findings of Bloomfield and O'Hara and shows how the existence of less transparent markets may increase the liquidity of the more transparent ones.

Suggested Citation

  • F. Drudi, 2005. "Price Manipulation in Parallel Markets with Different Transparency," The Journal of Business, University of Chicago Press, vol. 78(5), pages 1625-1658, September.
  • Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:5:p:1625-1658
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    File URL: http://dx.doi.org/10.1086/431437
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    Cited by:

    1. Massimo Massa & Andrei Simonov, 2009. "Experimentation in Financial Markets," Management Science, INFORMS, vol. 55(8), pages 1377-1390, August.
    2. Angeles de Frutos, M. & Manzano, Carolina, 2005. "Trade disclosure and price dispersion," Journal of Financial Markets, Elsevier, vol. 8(2), pages 183-216, May.
    3. Joshua V. Rosenberg & Leah G. Traub, 2006. "Price discovery in the foreign currency futures and spot market," Staff Reports 262, Federal Reserve Bank of New York.
    4. Paiardini, Paola, 2015. "Informed trading in parallel bond markets," Journal of Financial Markets, Elsevier, vol. 26(C), pages 103-121.

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