Market quality and contagion in fragmented markets

Rahi, Rohit and Zigrand, Jean-Pierre (2013) Market quality and contagion in fragmented markets. SRC Discussion Paper, No 2. Systemic Risk Centre, The London School of Economics and Political Science, London, UK.

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Abstract

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:	http://www.systemicrisk.ac.uk/
Additional Information:	© 2013 Systemic Risk Centre, The London School of Economics and Political Science
Library of Congress subject classification:	H Social Sciences > HG Finance
Journal of Economic Literature Classification System:	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
Sets:	Research centres and groups > Systemic Risk Centre
Identification Number:	No 2
Funders:	Economic and Social Research Council (ESRC)
Projects:	ES/K002309/1
Date Deposited:	18 Feb 2015 10:14
URL:	http://eprints.lse.ac.uk/60971/

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