Paying for Market Quality

被引:43
作者
Anand, Amber [1 ]
Tanggaard, Carsten [2 ]
Weaver, Daniel G. [3 ]
机构
[1] Syracuse Univ, Whitman Sch Management, Syracuse, NY 13244 USA
[2] Aarhus Univ, DK-8000 Aarhus, Denmark
[3] Rutgers State Univ, Piscataway, NJ 08854 USA
关键词
TRADE EXECUTION COSTS; PRICE DISCOVERY; AUCTION MARKETS; SPECIALIST; NASDAQ; NYSE; MICROSTRUCTURE; ILLIQUIDITY; LIQUIDITY; ATTENTION;
D O I
10.1017/S0022109009990421
中图分类号
F8 [财政、金融];
学科分类号
0202 ;
摘要
Many financial markets, including electronic limit order markets, assign designated liquidity providers (LPs). We study the experience of the Stockholm Stock Exchange, where listed firms contract directly with LPs. Our analysis offers insights regarding situations where designated liquidity provision may be beneficial. In addition, we consider the form of liquidity provision contracts, including affirmative obligations required of the LP and compensation for LP services. We find that low current trading activity, wide spreads, and higher information asymmetry increase the attractiveness of contracted liquidity provision. The evidence indicates that LPs trade against market movements and in times of wide spreads. On balance, firms contracting with LPs experience a decreased cost of capital and significant improvements in market quality and price discovery.
引用
收藏
页码:1427 / 1457
页数:31
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