A tale of one exchange and two order books : effects of fragmentation in the absence of competition
- Exchanges nowadays routinely operate multiple, almost identically structured limit order markets for the same security. We study the effects of such fragmentation on market performance using a dynamic model where agents trade strategically across two identically-organized limit order books. We show that fragmented markets, in equilibrium, offer higher welfare to intermediaries at the expense of investors with intrinsic trading motives, and lower liquidity than consolidated markets. Consistent with our theory, we document improvements in liquidity and lower profits for liquidity providers when Euronext, in 2009, consolidated its order ow for stocks traded across two country-specific and identically-organized order books into a single order book. Our results suggest that competition in market design, not fragmentation, drives previously documented improvements in market quality when new trading venues emerge; in the absence of such competition, market fragmentation is harmful.
Verfasserangaben: | Alejandro Bernales, Nicolás Garrido, Satchit Sagade, Marcela Valenzuela, Christian Westheide |
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URN: | urn:nbn:de:hebis:30:3-483781 |
URL: | https://ssrn.com/abstract=3276548 |
Titel des übergeordneten Werkes (Englisch): | SAFE working paper series ; No. 234 |
Schriftenreihe (Bandnummer): | SAFE working paper (234) |
Verlag: | SAFE |
Verlagsort: | Frankfurt am Main |
Dokumentart: | Arbeitspapier |
Sprache: | Englisch |
Jahr der Fertigstellung: | 2018 |
Jahr der Erstveröffentlichung: | 2018 |
Veröffentlichende Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Datum der Freischaltung: | 22.11.2018 |
Freies Schlagwort / Tag: | Competition; Fragmentation; Liquidity; Price Efficiency |
Ausgabe / Heft: | October 2018 |
Seitenzahl: | 57 |
HeBIS-PPN: | 439796970 |
Institute: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
DDC-Klassifikation: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Lizenz (Deutsch): | Deutsches Urheberrecht |