A comparison of stock market mechanisms

Giovanni Cespa

No 50, Working Papers from Barcelona School of Economics

Abstract: I analyze a multi-asset market under two trading mechanisms. In the first (the unrestricted system), traders' demand for each asset depends on all equilibrium prices and prices reflect the information contained in all order flows; in the second (the restricted system), traders' demand depends on the traded asset price and prices reflect single order flow information. I show that informed traders' use of multi-dimensional private information depends on the number of prices they observe, and on the price formation process. I then give conditions rendering the restricted system more efficient than the unrestricted system.

Keywords: asset pricing; Market microstructure; trading mechanisms; information and market efficiency (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Date: 2015-09
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Related works:
Journal Article: A Comparison of Stock Market Mechanisms (2004)
Working Paper: A Comparison of Stock Market Mechanism (2003)
Working Paper: A comparison of stock market mechanisms (2003)
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