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Quote disclosure and price discovery in multiple-dealer financial markets |
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| Authors: | Flood, MD Huisman, R Koedijk, KG Mahieu, RJ |
| Affiliation: | 1 Erasmus University, The Netherlands 2 University of Maastricht, The Netherlands z Corresponding author at: Department of Finance, Belk College of Business Administration, University of North Carolina, 9201 University City Blvd., Charlotte, NC 28223, USA. E-mail: mdflood@email.uncc.edu |
| Abstract: | We examine the effects of price disclosure on market performancein a continuous experimental multiple-dealer market in whichseven professional market makers trade a single security. Thedealers trade with one another and with computerized informedand liquidity traders. Our key comparison is between fully publicprice queues (pretrade transparent market) and bilateral quoting(pretrade opaque). We find that opening spreads are wider andtrading volume is lower in the opaque markets due to highersearch costs there. More importantly, however, higher searchcosts also induce more aggressive pricing strategies, so thatprice discovery is much faster in the opaque markets. |
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