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

Author

Listed:
  • Iftekhar Hasan

    (Rennselaer Polytechnic Institute & Bank of Finland)

  • Heiko Schmiedel

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

Abstract

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

Suggested Citation

  • Iftekhar Hasan & Heiko Schmiedel, 2004. "Do networks in the stock exchange industry pay off? European evidence," International Finance 0405002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpif:0405002
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    References listed on IDEAS

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    Cited by:

    1. Llewellyn, David T. & Mayes, David G., 2003. "The role of market discipline in handling problem banks," Bank of Finland Research Discussion Papers 21/2003, Bank of Finland.
    2. Kaie Kerem & Vello Vensel, 2005. "Theory and Empirical Evidence of Business Support Networks," Working Papers 129, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
    3. Jukka Vauhkonen, 2004. "Banks' equity stakes in borrowing firms: A corporate finance approach," Game Theory and Information 0404003, University Library of Munich, Germany.
    4. Jukka Vauhkonen, 2004. "Financial contracts and contingent control rights," Finance 0404022, University Library of Munich, Germany.
    5. Vello Vensel, 2004. "Operation of Business Supporting Networks: Evidence from an EU Candidate Country," Working Papers 117, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
    6. Guender, Alfred V., 2003. "Optimal discretionary monetary policy in the open economy: Choosing between CPI and domestic inflation as target variables," Bank of Finland Research Discussion Papers 12/2003, Bank of Finland.

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    More about this item

    Keywords

    stock exchanges; network externalities; remote access; Europe;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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