Do Networks in the Stock Exchange Industry Pay Off? European Evidence

Bank of Finland Working Paper No. 2/2003

47 Pages Posted: 1 Oct 2003

See all articles by Heiko Schmiedel

Heiko Schmiedel

European Central Bank - Securities Settlement Systems Policy Division

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Date Written: January 16, 2003

Abstract

The economic theory of network externalities provides the rationale for this paper, which investigates whether adoption of network strategies in European stock exchanges creates additional value in the provision of trading services. Using unbalanced panel data from all major European exchanges over the period 1996-2000, the paper examines empirically the presence of network effects on the liquidity, growth, and efficiency of the exchanges; the transaction cost of trades; and the cost of exchange operations. The evidence shows that adopting a network strategy is significantly associated with higher liquidity, growth and efficiency in the sample markets. Moreover, a network strategy helps to reduce transaction costs of trades as well as operational costs for stock exchanges.

Keywords: stock exchanges, network externalities, remote access, Europe

JEL Classification: F36, G15, O52

Suggested Citation

Schmiedel, Heiko and Hasan, Iftekhar, Do Networks in the Stock Exchange Industry Pay Off? European Evidence (January 16, 2003). Bank of Finland Working Paper No. 2/2003. Available at SSRN: https://ssrn.com/abstract=432582 or http://dx.doi.org/10.2139/ssrn.432582

Heiko Schmiedel

European Central Bank - Securities Settlement Systems Policy Division ( email )

Directorate General Payment Systems
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49-69 13 44 70 59 (Phone)
+49-69 13 44 60 00 (Fax)

Iftekhar Hasan (Contact Author)

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

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