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Market Transparency: Who Wins and Who Loses?

Posted: 8 Sep 1998  

Robert J. Bloomfield

Cornell University - Samuel Curtis Johnson Graduate School of Management

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management

Abstract

This study uses laboratory experiments to determine the effects of trade and quote disclosure on market efficiency, bid-ask spreads and trader welfare. We show that trade disclosure increases the informational efficiency of transaction prices, but also increases opening bid-ask spreads, apparently by reducing market makers' incentives to compete for order flow. As a result, trade disclosure benefits market makers at the expense of liquidity traders and informed traders. We find that quote disclosure has no discernible effects on market performance. Overall, our results demonstrate that the degree of market transparency has important effects on market equilibria and on trader and market maker welfare.

JEL Classification: G12, G14

Suggested Citation

Bloomfield, Robert J. and O'Hara, Maureen, Market Transparency: Who Wins and Who Loses?. Review of Financial Studies, Vol. 12, No. 1. Available at SSRN: https://ssrn.com/abstract=122708

Robert J. Bloomfield

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

450 Sage Hall
Ithaca, NY 14853
United States
607-255-9407 (Phone)
607-254-4590 (Fax)

Maureen O'Hara (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)

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