Liquidity, Trading Size, and the Co-Existence of Dealership and Auction Markets

Economic Notes, Vol. 29, Issue 2, July 2000

Posted: 7 Jul 2000

See all articles by Alberto Dalmazzo

Alberto Dalmazzo

University of Siena - Department of Economics

Fabio C. Bagliano

University of Turin - Department of Economics and Statistics; Center for Research on Pensions and Welfare Policies (CeRP); University of Turin - Collegio Carlo Alberto

Andrea Brandolini

Bank of Italy

Abstract

This paper analyses the co-existence of two markets for the same shares, a quote-driven market and an order-driven market, as observed for example for the trading of continental shares on the London SEAQ International. The focus is on the trade-off between the uncertain execution price faced by investors on an auction market and the implicit transaction cost represented by the spread in a dealer market. We obtain that those investors who desire to make large trades will prefer to trade with the dealer, while trades of smaller size will be carried out on the auction market. Moreover, we explicitly investigate the interrelations between the two markets showing that the pricing policy followed by a dealer depends on the conditions prevailing on the auction market.

JEL Classification: G10, D40

Suggested Citation

Dalmazzo, Alberto and Bagliano, Fabio C. and Brandolini, Andrea, Liquidity, Trading Size, and the Co-Existence of Dealership and Auction Markets. Economic Notes, Vol. 29, Issue 2, July 2000. Available at SSRN: https://ssrn.com/abstract=233611

Alberto Dalmazzo (Contact Author)

University of Siena - Department of Economics ( email )

Piazza S. Francesco, 7
Siena, I-53100
Italy
+39 0577 232 697 (Phone)

Fabio C. Bagliano

University of Turin - Department of Economics and Statistics ( email )

C. so Unione Sovietica, 218 Bis
Torino, I-10134
Italy
+39 011 670 6084 (Phone)
+39 011 670 6062 (Fax)

HOME PAGE: http://web.econ.unito.it/bagliano

Center for Research on Pensions and Welfare Policies (CeRP) ( email )

Via Real Collegio, 30
Moncalieri, Turin 10024
Italy

University of Turin - Collegio Carlo Alberto ( email )

via Real Collegio 30
Moncalieri, Torino 10024
Italy

Andrea Brandolini

Bank of Italy ( email )

Via Nazionale 91
Roma, Rome 00184
Italy
+390647923568 (Phone)
+390647923720 (Fax)

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