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Journal articles
Floors, dealer markets and limit order markets
Abstract : In dealer markets, liquidity suppliers have entire flexibility to bargain on the price with their customers. In limit order markets, they are restricted to convex schedules: they cannot sell the first share at a higher price than the second. Floor traders simply respond to the liquidity demand conveyed by brokers by crying out one price. In floor markets risk-sharing is inefficient and spreads are large. In dealer markets, risk-sharing can be efficient, but spreads tend to be large. In limit order markets, the unique equilibrium entails efficient risk-sharing and competitive spreads. Hence there is a non-monotonic relation between the efficiency of the market and the extent to which the offers of the liquidity suppliers are restricted.
https://hal-hec.archives-ouvertes.fr/hal-00481194
Contributor : Antoine Haldemann Connect in order to contact the contributor
Submitted on : Thursday, May 6, 2010 - 10:55:04 AM
Last modification on : Wednesday, October 7, 2020 - 3:26:06 PM
Contributor : Antoine Haldemann Connect in order to contact the contributor
Submitted on : Thursday, May 6, 2010 - 10:55:04 AM
Last modification on : Wednesday, October 7, 2020 - 3:26:06 PM
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