Information-Based Trading in Dealer and Auction Markets: An Analysis of Exchange Listings
Hans G. Heidle
U.S. Securities and Exchange Commission
Roger D. Huang
University of Notre Dame
Forthcoming in Journal of Financial and Quantitative Analysis
Are auction markets or dealer markets better able to identify informed traders? Our analysis of firms that transfer to an alternative exchange structure indicates that traders are more anonymous in a competing dealer market than in an auction environment. Our evidence also shows that the associated changes in the probability of trading with an informed trader are related to changes in the bid-ask spread. The reduction in bid-ask spreads are more pronounced for firms with higher probability of transacting with an informed trader prior to the relocation from a dealer to an auction market.
Keywords: Market Microstructure, Information-Based Trading, Trader Anonymity, Trading Costs, Exchange Listing
JEL Classification: G10, G14, D82Accepted Paper Series
Date posted: December 10, 2001
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