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A tale of one exchange and two order books : effects of fragmentation in the absence of competition
(2018)
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.
We provide the first partner tenure and rotation analysis for a large cross-section of U.S. publicly listed firms over an extended period. We analyze the effects on audit quality as well as economic tradeoffs with respect to audit hours and fees. On average, we find no evidence for audit quality declines over the tenure cycle and, consistent with the former, little support for fresh-look benefits after five-year mandatory rotations. Nevertheless, partner rotations have significant economic consequences. We find increases in audit fees and decreases in audit hours over the tenure cycle, which differ by partner experience, client size, and competitiveness of the local audit market. Our findings are consistent with efforts by the audit firms to minimize disruptions and audit failures around mandatory rotations. We also analyze special circumstances, such as audit firm or audit team switches and early partner rotations. We show that these situations are more disruptive and more likely to exhibit audit quality effects. In particular, we find that low quality audits give rise to early engagement partner rotations and in this sense have (career) consequences for partners.
Although in real life people frequently perform visual search together, in lab experiments this social dimension is typically left out. Here, we investigate individual, collaborative and competitive visual search with visualization of search partners’ gaze. Participants were instructed to search a grid of Gabor patches while being eye tracked. For collaboration and competition, searchers were shown in real time at which element the paired searcher was looking. To promote collaboration or competition, points were rewarded or deducted for correct or incorrect answers. Early in collaboration trials, searchers rarely fixated the same elements. Reaction times of couples were roughly halved compared with individual search, although error rates did not increase. This indicates searchers formed an efficient collaboration strategy. Overlap, the proportion of dwells that landed on hexagons that the other searcher had already looked at, was lower than expected from simulated overlap of two searchers who are blind to the behavior of their partner. The proportion of overlapping dwells correlated positively with ratings of the quality of collaboration. During competition, overlap increased earlier in time, indicating that competitors divided space less efficiently. Analysis of the entropy of the dwell locations and scan paths revealed that in the competition condition, a less fixed looking pattern was exhibited than in the collaborate and individual search conditions. We conclude that participants can efficiently search together when provided only with information about their partner’s gaze position by dividing up the search space. Competing search exhibited more random gaze patterns, potentially reflecting increased interaction between searchers in this condition.