Market Liquidity and Trader Welfare in Multiple Dealer Markets: Evidence from Dual Trading Restrictions

Peter R. Locke, Asani Sarkar and Lifan Wu

Journal of Financial and Quantitative Analysis, 1999, vol. 34, issue 1, 57-88

Abstract: In the context of dual trading restrictions, we examine whether aggregate liquidity measures are appropriate indicators of trader welfare in multiple dealer markets. Consistent with our theoretical results, we show empirically that dual trading restrictions did not affect market liquidity significantly, but dual traders of above average skills may have quit brokerage and switched to trading exclusively for their own accounts following restrictions. Further, customers of these dual traders had lower trading costs in the period before restrictions relative to the trading costs of all customers after restrictions.

Date: 1999
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Working Paper: Market liquidity and trader welfare in multiple dealer markets: evidence from dual trading restrictions (1997)
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