Abstract

https://ssrn.com/abstract=2165269
 


 



Middlemen Interaction and Market Quality


Albert J. Menkveld


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

Bart Z. Yueshen


INSEAD - Finance

August 27, 2013

Paris December 2012 Finance Meeting EUROFIDAI-AFFI Paper

Abstract:     
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.

Number of Pages in PDF File: 40

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

JEL Classification: G10


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Date posted: October 23, 2012 ; Last revised: October 6, 2013

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: https://ssrn.com/abstract=2165269 or http://dx.doi.org/10.2139/ssrn.2165269

Contact Information

Albert J. Menkveld
VU University Amsterdam ( email )
De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31 20 5986130 (Phone)
+31 20 5986020 (Fax)
Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )
Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands
Bart Zhou Yueshen (Contact Author)
INSEAD - Finance ( email )
Boulevard de Constance
F-77305 Fontainebleau Cedex
France

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