Liquidity, volume and price efficiency: The impact of order vs. quote driven trading

Katya Malinova and Andreas Park

Journal of Financial Markets, 2013, vol. 16, issue 1, 104-126

Abstract: As equity trading becomes predominantly electronic, is there still value to a traditional, intermediated dealer system? We address this question by comparing the impact of the organization of trading on volume, liquidity, and price efficiency in a quote-driven dealer market and in an order-driven limit order book. Small order price impacts are higher and large order price impacts are lower in a dealer market. Prices are more efficient in the limit order book, except when the level of informed trading is high. Volume is higher in a limit order market, making this system most attractive for trading venues.

Keywords: Order and quote driven trading; Hybrid markets; Execution costs; Price efficiency; Liquidity (search for similar items in EconPapers)
JEL-codes: D82 G14 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:16:y:2013:i:1:p:104-126

DOI: 10.1016/j.finmar.2012.09.002

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