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Middlemen Interaction and Market Quality

40 Pages Posted: 23 Oct 2012 Last revised: 6 Oct 2013

Albert J. Menkveld

VU University Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Bart Z. Yueshen

INSEAD - Finance

Date Written: August 27, 2013


Two frictions, arrival asynchronicity and information asymmetry, stand in the way of the efficient asset reallocation from a low-valuation seller to high-valuation buyers. Middlemen help alleviate these frictions 1) by helping connect the investors and 2) by generating market activity from which the uninformed seller can learn (imperfectly) about the true asset value. However, 3) given market activity, the seller's learning precision is impaired: She cannot distinguish the price pressure associated with an inter-middlemen trade from a fundamental value drop. Overall, additional middlemen improve social welfare only if there are abundant reselling opportunity. The paper speaks to recent disruptions in financial securities markets.

Keywords: middleman, learning, high-frequency trader, electronic market

JEL Classification: G10

Suggested Citation

Menkveld, Albert J. and Yueshen, Bart Z., Middlemen Interaction and Market Quality (August 27, 2013). Paris December 2012 Finance Meeting EUROFIDAI-AFFI Paper. Available at SSRN: or

Albert J. Menkveld

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
+31 20 5986130 (Phone)
+31 20 5986020 (Fax)

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS

Bart Yueshen (Contact Author)

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex

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