Why do larger orders receive discounts on the London Stock Exchange?

• 成果类型: Article
• 署名作者: Bernhardt, D; Dvoracek, V; Hughson, E; Werner, IM
• 署名单位: University of Colorado System; University of Colorado Boulder; University of Illinois System; University of Illinois Chicago; University of Illinois Chicago Hospital; University System of Ohio; Ohio State University; University of Fraser Valley
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhi002
• 发表日期: 2005
• 页码: 1343
• 关键词: PRICE FORMATION; trading costs; MARKET; volume; inventories; execution; liquidity; book; FLOW

摘要

We argue that competition between dealers in a classic dealer market is intertemporal: A trader identifies a particular dealer and negotiates a final price with only the intertemporal threat to switch dealers imposing pricing discipline on the dealer. In this kind of market structure, we show that dealers will offer greater price improvement to more regular customers, and, in turn, these customers optimally choose to submit larger orders. Hence, price improvement and trade size should be negatively correlated in a dealer market. We confirm our model's predictions using unique data from the London Stock Exchange during 1991.