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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
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
Sets: Research centres and groups > Systemic Risk Centre
Date Deposited: 18 Feb 2015 10:14
Last Modified: 11 Dec 2017 13:06
Projects: ES/K002309/1
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/60971

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