The Impact of Broker Market Structure on Stock Liquidity

47 Pages Posted: 12 Jul 2016 Last revised: 29 Sep 2016

See all articles by Wai-Man (Raymond) Liu

Wai-Man (Raymond) Liu

Australian National University (ANU) - School of Finance and Applied Statistics

Joshua Soo

Deloitte Australia

Geoff Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics

Date Written: September 23, 2016

Abstract

We investigate the extent to which the liquidity of listed stocks is affected by the market structure under which stockbrokers provide a combination of stock trading, research, and investment banking services. Six market structures of differing degrees of competitiveness are identified for brokers operating in the Australian equity market. We find that less competitive structures tend to associate with lower stock liquidity; and that shifts in broker market structure align with changes in liquidity over time. Further, broker market structures appear to interact with the provision of services by brokers, such that additional services improve liquidity to a greater extent under less competitive structures. Our research shows that the market structure for brokerage services acts as an additional determinant of the market liquidity of stocks.

Keywords: Market liquidity, Stockbroking, Industrial organization

JEL Classification: G12, G24, L19

Suggested Citation

Liu, Wai-Man (Raymond) and Soo, Joshua and Warren, Geoffrey J., The Impact of Broker Market Structure on Stock Liquidity (September 23, 2016). Available at SSRN: https://ssrn.com/abstract=2807621 or http://dx.doi.org/10.2139/ssrn.2807621

Wai-Man (Raymond) Liu

Australian National University (ANU) - School of Finance and Applied Statistics ( email )

Building 26c College of Business & Economics
Australian National University
Acton, Canberra ACT, Australian Capital Territory 2601
Australia
+61 2 612 53471 (Phone)
+61 2 612 50087 (Fax)

HOME PAGE: http://https://researchers.anu.edu.au/researchers/liu-wm

Joshua Soo

Deloitte Australia ( email )

Geoffrey J. Warren (Contact Author)

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics ( email )

CBE Building 26C
Kingsley Sreet, Acton
Canberra, ACT 0200
Australia

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