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Dividing the Pie
Mark D. Flood Federal Housing Finance Agency Kees C. G. Koedijk Tilburg University - Department of Finance Mathijs A. Van Dijk Rotterdam School of Management, Erasmus University Irma W. Van Leeuwen Maastricht University - Limburg Institute of Financial Economics (LIFE) 29 2002, 10 ERIM Report Series Reference No. ERS-2002-101-F&A Abstract: We examine the consequences of transparency in an experimentalmultiple-dealer market with asymmetrically informed dealers. Fiveprofessional securities traders make a market for a single security.In each trading round, one of the dealers (the "insider") is told thesecurity's true value. We vary both pre-trade and post-tradetransparency by changing the way quote and trade information ispublished. The insider's profits are greatest when price efficiency islowest. Price efficiency, in turn, is reduced by pre-tradetransparency and increased by posttrade transparency. Marketliquidity, measured by dealers' bid-ask spreads, is improved bypre-trade transparency and reduced by post-trade transparency.
Keywords: financial markets, market microstructure, experimental economics, information asymmetry JEL Classifications: M, M41, G3, G10, G14, D82 Working Paper SeriesDate posted: January 18, 2003 ; Last revised: January 07, 2010Suggested CitationContact Information
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