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Dealer liquidity in an auction market: evidence fom the London Stock Exchange

Friederich, Sylvain and Payne, Richard (2002) Dealer liquidity in an auction market: evidence fom the London Stock Exchange. Discussion paper, 427. Financial Markets Group, London School of Economics and Political Science, London, UK.

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Abstract

We analyse the trade characteristics and market conditions which determine the market share of an electronic order book at the London Stock Exchange, where an \upstairs" network of dual-capacity rms is also available for trade. We hypothesise and empirically verify that execution and information risks govern the choice of execution mode. Further, we uncover strong commonality in the market share of the order book across stocks, and nd that variables proxying for market-wide liquidity and informational risks also aect the choice of trading venue. These ndings appear robust to possible endogeneity of the measures of order book liquidity. They suggest that competing, o-book liquid- ity suppliers voluntarily perform at least some of the \stabilisation" functions normally assigned to designated market-makers.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2002 The Authors
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 427
Date Deposited: 20 Aug 2009 14:54
URL: http://eprints.lse.ac.uk/24947/

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