Post-Trade Transparency in Multiple Dealer Financial Markets

31 Pages Posted: 25 Jun 1997

See all articles by Mark D. Flood

Mark D. Flood

R. H. Smith School of Business, U. of Maryland

Ronald Huisman

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Kees C. G. Koedijk

Tilburg University - Department of Finance

Ronald Mahieu

Tilburg University - Center for Economic Research, Econometrics and Finance Group; TiasNimbas Business School

Ailsa Röell

Columbia University, School of International and Public Affairs

Date Written: March 1997

Abstract

In this paper we examine the effects of the amount of trade disclosure in an experimental financial market, in which nine professional traders set quotes and trade continuously. In addition to these market makers, two computerized external customers interact, representing both informed and liquidity or noise traders. The amount of transaction information is varied, whereas the level of price information is held constant at a low level. From our results it becoms clear that that uninformed traders gain from an increase in the level of transparency. This gain from transparency comes at the cost of the informed traders. In terms of spreads, we find significant wider opening spreads in transparent markets in contrast with opaque markets. The differences in spreadsize dissappear over time in such a way that the spreads in the transparent markets narrow whereas in opaque markets they remain constant. Finally, we find that transparency significantly enhances the price discovery process.

JEL Classification: G12, G14

Suggested Citation

Flood, Mark D. and Huisman, Ronald and Koedijk, Kees G. and Mahieu, Ronald J. and Röell, Ailsa A., Post-Trade Transparency in Multiple Dealer Financial Markets (March 1997). Available at SSRN: https://ssrn.com/abstract=39820 or http://dx.doi.org/10.2139/ssrn.39820

Mark D. Flood

R. H. Smith School of Business, U. of Maryland ( email )

College Park
College Park, MD 20742
United States

Ronald Huisman (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Kees G. Koedijk

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 4663048 (Phone)
+31 13 4662052 (Fax)

Ronald J. Mahieu

Tilburg University - Center for Economic Research, Econometrics and Finance Group ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2430 (Phone)
+31 13 466 3280 (Fax)

HOME PAGE: http://center.uvt.nl/staff/mahieu/

TiasNimbas Business School ( email )

Warandelaan 2
Tilburg, North-Brabant 5071HS
Netherlands

Ailsa A. Röell

Columbia University, School of International and Public Affairs ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-9289 (Phone)

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