Book | Finance area | Year 2010 | |
Informed Trading In Parallel Auction And Dealer Markets: A Case Of The London Stock Exchangeby Nareerat Taechapiroontong; Pankaj K. Jain; Christine X. Jiang; Thomas H. McInish | |
McGraw-Hill Financial Education May 2010 |
AbstractIn this paper, we examine trading on the London Stock Exchange where the same stocks trade side-by-side on the computer-based Stock Exchange Electronic Trading Service (SETS) and the dealer market (DM). SETS has more trades overall, but the DM has larger trades and dominates the execution of very large sized trades. The permanent price impact of trades is much larger on SETS than on the DM. However, the temporary price impact of trades is significantly larger on the DM than on SETS. The two effects together indicate that informed trades are likely routed to SETS for immediate execution whereas informed trades are screened or trade prices are appropriately negotiated ex-ante to reflect information in the DM.
Keywords: Anonymity; Informed trading; Price Impact Muliti market trading London Stock Exchange Comments: The Handbook of Trading by Greg N. Gregoriou |