Market Transparency, Market Quality and Sunshine Trading

Maria-Angeles de Frutos and Carolina Manzano ()

Working Papers from Universitat Rovira i Virgili, Department of Economics

Abstract: This paper analyzes the implications of pre-trade transpareny on market performance. We find that transparency increases the precision held by agents, however we show that this increase in precision may not be due to prices themselves. 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, being the traders with higher liquidity needs more interested in sunshine trading, as long as this practice is desirable. Key words: Market Microstructure, Transparency, Prior Information, Market Quality, Sunshine Trading

Keywords: Mercats financers; Informació -- Aspectes econòmics; 33 - Economia (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cta and nep-mst
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http://hdl.handle.net/2072/211882

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Journal Article: Market transparency, market quality, and sunshine trading (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:urv:wpaper:2072/211882

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