Information sharing, liquidity and transaction costs in floor-based trading systems
We consider information sharing between traders("floor brokers") who possess different types of information, namely information on the payoff of a risky security or information on the volume of liquidity trading in this security. We interpret these traders as dual -capacity brokers on the floor of an exchange. We identify conditions under which the traders are better off sharing information. We also show that information sharing improves price discovery, reduces volatility and lowers expected trading costs. Information sharing can improve or impair the depth of the market, depending on the values of the parameters. Overall our analysis suggests that information sharing among floor brokers improves the performance of floor-based trading systems.
market microstructure; floor-based trading systems; open outcry; information sharing; information sales
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.