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Market Liquidity and Trader Welfare in Multiple Dealer Markets: Evidence From Dual Trading Restrictions

55 Pages Posted: 9 Nov 1998  

Asani Sarkar

Federal Reserve Bank of New York

Peter Locke

Texas Christian University

Lifan Wu

California State University, Los Angeles - Department of Finance and Law

Multiple version iconThere are 2 versions of this paper

Date Written: July 1998

Abstract

In the context of dual trading restrictions, we examine whether aggregate liquidity measures are appropriate indicators of trader welfare in multiple dealer markets. Consistent with our theoretical results, we show empirically that dual trading restrictions did not affect market liquidity significantly, but dual traders of above-average skills may have quit brokerage and switched to trading exclusively for their own accounts following restrictions. Further, customers of these dual-traders had lower trading costs in the period before restrictions relative to the trading costs of all customers after restrictions.

JEL Classification: G12, G13, G18

Suggested Citation

Sarkar, Asani and Locke, Peter and Wu, Lifan, Market Liquidity and Trader Welfare in Multiple Dealer Markets: Evidence From Dual Trading Restrictions (July 1998). Available at SSRN: https://ssrn.com/abstract=138971 or http://dx.doi.org/10.2139/ssrn.138971

Asani Sarkar (Contact Author)

Federal Reserve Bank of New York ( email )

Research Department
33 Liberty Street
New York, NY 10045
United States
212-720-8943 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/sarkar/pub.html

Peter R. Locke

Texas Christian University ( email )

Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
817-257-5048 (Phone)

Lifan Wu

California State University, Los Angeles - Department of Finance and Law ( email )

5151 State University Dr
Los Angeles, CA 90032
United States
213-343-2870 (Phone)

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