The profitability of block trades in auction and dealer markets

Snell, Andy and Tonks, Ian (2000) The profitability of block trades in auction and dealer markets. Financial Markets Group Discussion Papers (340). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

The paper compares the trading costs for institutional investors who are subject to liquidity shocks, of trading in auction and dealer markets. The batch auction restricts the institutions' ability to exploit informational advantages because of competition between institutions when they simultaneously submit their orders. This competition lowers aggregate trading costs. In the dealership market, competition between traders is absent but trades occur in sequence so that private information is revealed by observing the flow of successive orders. The information revelation reduces trading costs in aggregate. We analyse the relative effects on profits of competition in one system and information revelation in the other and identify the circumstances under which dealership markets have lower trading costs than auction markets and vice versa.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2000 The Author(s)
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G1 - General Financial Markets > G10 - General G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets G - Financial Economics > G1 - General Financial Markets > G19 - Other
Date Deposited:	29 Jun 2023 13:03
Last Modified:	14 Sep 2024 04:33
URI:	http://eprints.lse.ac.uk/id/eprint/119109

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