The organization of financial exchange markets: Theory and evidence

Pirrong, Craig

doi:10.1016/s1386-4181(99)00005-1

Cited by 82 publications

(60 citation statements)

References 15 publications

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“…21 We take the number of market makers as given. Pirrong (1999) presents a model where the number of members in an exchange is endogenous. true for small order sizes.…”

Section: Comparing Market Architecturesmentioning

confidence: 99%

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Market architecture: limit-order books versus dealership markets

Viswanathan

Wang²

2002

Journal of Financial Markets

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We analyze the customer's choice with respect to a limit-order book, a dealership market, and a hybrid market structure that combines the two. The customer's sell order is competed for and divided among a finite number of risk-averse market makers. We present a general characterization of equilibrium in the limit-order book. We show that when the order flow has a linear hazard ratio, the limit order book is preferred by risk neutral customers. However, a risk averse customer will prefer to trade in a dealership market when the number of market makers is large. Further, for risk averse customers, the hybrid market structure can dominate the dealership market and the limit-order book. The results are driven by a tradeoff between two features of the equilibrium demand schedules: a bid-shading effect that operates differently in a limit-order book compared with a dealership market, and a zero-quantity bid-ask spread that is present in the limit-order book only. r 2002 Published by Elsevier Science B.V.

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“…21 We take the number of market makers as given. Pirrong (1999) presents a model where the number of members in an exchange is endogenous. true for small order sizes.…”

Section: Comparing Market Architecturesmentioning

confidence: 99%

“…In contrast, our paper involves a comparison between a limit-order book, a dealership market, and a hybrid limit-order/dealership market structure. Pirrong (1999) considers a model that focuses on the competition between exchanges. 6 Bernheim and Whinston's (1986) work on menu auctions is related to this literature.…”

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confidence: 99%

Market architecture: limit-order books versus dealership markets

Viswanathan

Wang²

2002

Journal of Financial Markets

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“…Arnold, Hersch, Mulherin, and Netter (1999),Domowitz and Steil (1999), andPirrong (1999) stress the importance of assuming that exchanges are actually operative firms and argue that the industrial structure of market places cannot be explained by focusing on the demand side alone, as in financial market microstructure studies that concentrate on the characteristics of trading systems and the demand side of trading services, that is, the traders. It is equally important to know more about the provision of alternative technologies for trading services.4 The concept of network externalities is developed in the New Theory of Industrial Organization and represents an important field in economics, as it applies to a variety of industries, such as telecommunications, airlines, railroads, etc (Shy, 2001…”

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confidence: 99%

Networks and equity market integration: European evidence

Hasan

Schmiedel

2004

International Review of Financial Analysis

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“…As mentioned above, the latter literature mainly studies competition for the listing of firms or the trading of securities between different exchanges and thus has a different focus than our work. Relevant issues in that context are economies of scale in trading (Demsetz (1968)), liquidity effects (Pagano, 1989), transportation costs (Gehrig (1998)), economies of scope (Pirrong (1999), and network externalities (Di Noia (2001). Steil (2002) and Domowitz and Steil (2002) have argued that improvements in trading technology in the 1990s, most notably the advent of electronic trading, have facilitated and increased competition between stock exchanges, thus increasing entry and reducing transactions costs.…”

Section: Introductionmentioning

confidence: 99%

Stock exchange competition in a simple model of capital market equilibrium

Ramos¹,

Thadden

2008

Journal of Financial Markets

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This paper uses a simple model of mean-variance capital markets equilibrium with proportional transactions costs to analyze the competition of stock markets for investors. We assume that equity trading is costly and endogenize transactions costs as variables strategically influenced by stock exchanges. Among other things, the model predicts that increasing financial market correlation leads to a decrease of transaction costs, an increase in cross-border trading activity, and to a decrease in the home bias of international equity flows. These predictions are consistent with the recent evolution of international stock markets.JEL classification: G11, G15, G29.

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The organization of financial exchange markets: Theory and evidence

Cited by 82 publications

References 15 publications

Market architecture: limit-order books versus dealership markets

Market architecture: limit-order books versus dealership markets

Networks and equity market integration: European evidence

Stock exchange competition in a simple model of capital market equilibrium

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