Posted: 8 Sep 1998
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: 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