Biais, Bruno, Bisière, Christophe and Spatt, Chester (2010) Imperfect Competition in Financial Markets: An Empirical Study of Island and Nasdaq. Management Science, vol. 56 (n° 12). pp. 2237-2250.
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Abstract
The competition between Island and Nasdaq at the beginning of the century offers a natural laboratory to study competition between and within trading platforms and its consequences for liquidity supply. Our empirical strategy takes advantage of the difference between the pricing grids used on Island and Nasdaq, as well as of the decline in the Nasdaq tick. Using the finer grid prevailing on their market, Island limit order traders undercut Nasdaq quotes, much more than they undercut one another. The drop in the Nasdaq tick size triggered a drop in Island spreads, despite the Island tick already being very thin before Nasdaq decimalization. We also estimate a structural model of liquidity supply and find that Island limit order traders earned rents before Nasdaq decimalization. Our results suggest that perfect competition cannot be taken for granted, even on transparent open limit order books with a very thin pricing grid.
Item Type: | Article |
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Sub-title: | An Empirical Study of Island and Nasdaq |
Language: | English |
Date: | December 2010 |
Refereed: | Yes |
Uncontrolled Keywords: | competition in financial markets, concurrence sur les marchés financiers, liquidity supply, offre de liquidité, trading mechanisms, mécanismes d'échanges, different tick sizes, différents pas de cotation |
JEL Classification: | G1 - General Financial Markets G14 - Information and Market Efficiency; Event Studies |
Subjects: | B- ECONOMIE ET FINANCE |
Divisions: | TSE-R (Toulouse), TSM Research (Toulouse) |
Site: | UT1 |
Date Deposited: | 19 Dec 2011 05:45 |
Last Modified: | 02 Apr 2021 15:33 |
OAI Identifier: | oai:tse-fr.eu:22759 |
URI: | https://publications.ut-capitole.fr/id/eprint/915 |
Available Versions of this Item
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Imperfect Competition in Financial Markets: ISLAND versus NASDAQ. (deposited 18 Jan 2012 05:47)
- Imperfect Competition in Financial Markets. (deposited 19 Dec 2011 05:45) [Currently Displayed]