Inter-dealer trading in financial markets

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

18 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)987-1040
Journal / PublicationJournal of Business
Volume77
Issue number4
Publication statusPublished - Oct 2004
Externally publishedYes

Abstract

We compare the following multi-stage inter-dealer trading mechanisms: a one-shot uniform-price auction, a sequence of unit auctions (sequential auctions), and a limit-order book. With uninformative customer orders, sequential auctions are revenue-preferred because winning dealers in earlier stages restrict quantity in subsequent auctions so as to raise the price. Since winning dealers make higher profits, dealers compete aggressively, thus yielding higher customer revenue. With informative customer orders, winning dealers use their private information in subsequent trading, reducing liquidity. Sequential trading breaks down when the customer order flow is too informative, while the limit-order book is robust and yields higher revenues. © 2004 by The University of Chicago. All rights reserved.

Citation Format(s)

Inter-dealer trading in financial markets. / Viswanathan, S.; Wang, James J.D.

In: Journal of Business, Vol. 77, No. 4, 10.2004, p. 987-1040.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal