Market transparency, market quality, and sunshine trading

Maria-Angeles de Frutos and Carolina Manzano ()

Journal of Financial Markets, 2014, vol. 17, issue C, 174-198

Abstract: This paper analyzes the implications of pre-trade transparency on market performance. In competitive markets, transparency increases market liquidity and reduces price volatility, whereas these results may not hold under imperfect competition. More importantly, market depth and volatility might be positively related with proper priors. Moreover, we study the incentives for liquidity traders to engage in sunshine trading. We obtain that the choice of sunshine/dark trading for a noise trader is independent of his order size. The traders with higher liquidity needs are more interested in sunshine trading, as long as this practice is desirable.

Keywords: Market microstructure; Transparency; Prior information; Market quality; Sunshine trading (search for similar items in EconPapers)
JEL-codes: D82 G12 G14 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (5)

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Working Paper: Market Transparency, Market Quality and Sunshine Trading (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:17:y:2014:i:c:p:174-198

DOI: 10.1016/j.finmar.2013.06.001

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