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Market quality and contagion in fragmented markets

Rahi, Rohit ORCID: 0000-0001-6887-9160 and Zigrand, Jean-Pierre ORCID: 0000-0002-7784-4231 (2013) Market quality and contagion in fragmented markets. Systemic Risk Centre Discussion Papers (2). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.

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Financial market liquidity has become increasingly fragmented across multiple trading platforms. We propose an intuitive welfare-based market quality metric that can properly aggregate local market conditions across both securities and trading venues. Our analysis rests on a general equilibrium model with segmented markets. Arbitrageurs reap profits by effectively providing intermediation services (i.e. “liquidity"). Our market quality measure is equal to the additional consumption enjoyed by investors as a result of this intermediation, and can be represented by means of a number of observable proxies. The model is especially well-suited to study the contagion-like effects of liquidity shocks.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2013 The Author
Divisions: Systemic Risk Centre
Subjects: H Social Sciences > HG Finance
JEL classification: D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D52 - Incomplete Markets
D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D53 - Financial Markets
G - Financial Economics > G1 - General Financial Markets > G10 - General
G - Financial Economics > G2 - Financial Institutions and Services > G20 - General
Date Deposited: 18 Feb 2015 10:14
Last Modified: 16 May 2024 12:01
Projects: ES/K002309/1
Funders: Economic and Social Research Council

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