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Do networks in the stock exchange industry pay off? European evidence

  • Hasan, Iftekhar

    (Rennselaer Polytechnic Institute and Bank of Finland Research)

  • Schmiedel , Heiko

    (HWWA-Hamburg Institute of International Economics and Bank of Finland)

The economic theory of network externalities provides the rationale for this paper, which investigates whether adoption of network strategies in European stock exchanges creates additional value in the provision of trading services. Using unbalanced panel data from all major European exchanges over the period 1996–2000, the paper examines empirically the presence of network effects on the liquidity, growth, and efficiency of the exchanges; the transaction cost of trades; and the cost of exchange operations. The evidence shows that adopting a network strategy is significantly associated with higher liquidity, growth and efficiency in the sample markets. Moreover, a network strategy helps to reduce transaction costs of trades as well as operational costs for stock exchanges.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0302.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 2/2003.

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Length: 47 pages
Date of creation: 16 Jan 2003
Date of revision:
Handle: RePEc:hhs:bofrdp:2003_002
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/

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