Who Wins When Exchanges Compete?  Evidence from Competition after Euro Conversion

Using euro conversion as the trigger, we examine what drives volume and spread changes when stock exchanges compete. Results show average trading costs on European exchanges decrease almost 9%, and turnover increases over 30%. Trading costs decline or remain unchanged on all exchanges, but volume deteriorates in some markets and improves in others. Frankfurt, Paris, London and Milan are winners, while Madrid and Brussels lose volume. We examine the role of the spread-volume relation, firm characteristics, exchange trading rules, and country-level factors in determining these outcomes. Results suggest that euro conversion prompted competition by increasing transparency in market prices.

Keywords: Exchange competition, Euro adoption, Transparency, Trading costs, Volume

JEL Classification: G15, F36, G12

Suggested Citation: Suggested Citation

Dewenter, Kathryn L. and Han, Xi and Koski, Jennifer Lynch, Who Wins When Exchanges Compete? Evidence from Competition after Euro Conversion (May 1, 2017). Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2634080 or http://dx.doi.org/10.2139/ssrn.2634080