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Transparency and Liquidity: A Comparison of Auction and Dealer Markets with Informed Trading
Open accessAbstract
Trading systems differ in their degree of transparency, here defined as the extent to which market makers can observe the size and direction of the current order flow. We investigate whether greater transparency enhances market liquidity by reducing the opportunities for taking advantage of uninformed participants. We compare the price formation process in several stylized trading systems with different degrees of transparency: various types of auction markets and a stylized dealer market. We find that greater transparency generates lower trading costs for uninformed traders on average, although not necessarily for every size of trade.
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Citations
Cited by
Schnackenberg, A. K., & Tomlinson, E. C. (2016) · Journal of Management · doi:10.1177/0149206314525202 · Cited by 762
Price Dynamics in Limit Order Markets
Parlour, C. A. (1998) · Review of Financial Studies · doi:10.1093/rfs/11.4.789 · Cited by 594
Information Disclosure in Financial Markets
Goldstein, I., & Yang, L. (2017) · Annual Review of Financial Economics · doi:10.1146/annurev-financial-110716-032355 · Cited by 409
Yang, Y. (2018) · Journal of Service Theory and Practice · doi:10.1108/jstp-06-2017-0102 · Cited by 38
Metadata
- Authors
- PAGANO, M., & RÖELL, A.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 1996-06
- Volume
- 51
- Issue
- 2
- Pages
- 579-611
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2113551185
- Cited by
- 545
- References
- 0
- FWCI
- 31.05
- Type
- journal article
- Language
- en
- Open access
- hybrid
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- PAGANO, M., & RÖELL, A. (1996). Transparency and Liquidity: A Comparison of Auction and Dealer Markets with Informed Trading. The Journal of Finance. https://doi.org/10.1111/j.1540-6261.1996.tb02695.x
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
