Risk aversion, transparency, and market performance

• 成果类型: Article
• 署名作者: De Frutos, MA; Manzano, C
• 署名单位: Universidad Carlos III de Madrid; Universitat Rovira i Virgili
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/1540-6261.00448
• 发表日期: 2002
• 页码: 959-984
• 关键词: london stock-exchange; price formation; liquidity; INFORMATION; disclosure; auctions

摘要

Using a model of market making with inventories based on Biais (1993), we find that investors obtain more favorable execution prices, and they hence invest more, when markets are fragmented. In our model, risk-averse dealers use less aggressive price strategies in more transparent markets (centralized) because quote dissemination alleviates uncertainty about the prices quoted by other dealers and, hence, reduces the need to compete aggressively for order flow. Further, we show that the move toward greater transparency (centralization) may have detrimental effects on liquidity and welfare.