Liquidity, Trading Size, and the Co-existence of Dealership and Auction Markets |
| |
| Authors: | F. C. Bagliano,rea Brandolini,& Alberto Dalmazzo |
| |
| Affiliation: | Dipartimento di Teoria dei Sistemi e delle Organizzazioni, Universita di Teramo, Viale Crucioli 122, 64100, Teramo, Italy,;Research Department, Banca d'Italia, Via Nazionale 91, Roma, Italy,;Dipartimento di Economia Politica, Universita di Siena, Piazza San Francesco 7, 53100 Siena, Italy |
| |
| Abstract: | This paper analyses the co-existence of two markets for the same shares, a quote-driven market and an order-driven market, as observed for example for the trading of continental shares on the London SEAQ International. The focus is on the trade-off between the uncertain execution price faced by investors on an auction market and the implicit transaction cost represented by the spread in a dealer market. We obtain that those investors who desire to make large trades will prefer to trade with the dealer, while trades of smaller size will be carried out on the auction market. Moreover, we explicitly investigate the interrelations between the two markets showing that the pricing policy followed by a dealer depends on the conditions prevailing on the auction market.
(J.E.L: G10, D40) |
| |
| Keywords: | |
|
|
