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| Author: | Frutos, M.A. de Manzano, C. |
| Title: | Risk aversion, transparency, and market performance |
| Journal: | Journal of Finance
2002 : APR, VOL. 57:2, p. 959-984 |
| Index terms: | Stock markets Stock exchanges Share prices Securities Risk Models Europe USA |
| Language: | eng |
| Abstract: | Using a model of market making with inventories based on Biais (1993), this study has found that investors obtain more favourable execution prices, and they hence invest more, when markets are fragmented. In the model presented, risk-averse dealers use less aggressive price strategies in more transparent markets (centralised) because quote dissemination alleviates uncertainty about the prices quoted by other dealers, reducing the need to compete aggressively for order flow. Further, it is shown that the move toward greater transparency (centralisation) may have detrimental effects on liquidity and welfare. |
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