Transparency, Liquidity and Price Formation
Barbara Rindi ()
No 159, Royal Economic Society Annual Conference 2002 from Royal Economic Society
This paper shows that the results on market transparency from previous literature are reversed when allowing for endogenous information acquisition: transparency reduces liquidity. Most theoretical models demonstrate that transparency enhances liquidity, whilst the results obtained so far by empirical and experimental works have been ambiguous. This paper shows how transparency a .ects the quality of financial markets. We model the market for a risky asset as an open limit-order book and compare three regimes of pre-trade transparency: under full transparency agents can observe the order flow and traders' personal identifiers.
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Persistent link: https://EconPapers.repec.org/RePEc:ecj:ac2002:159
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