Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/225341
Authors: 
Bernales, Alejandro
Garrido, Nicolás
Sagade, Satchit
Valenzuela, Marcela
Westheide, Christian
Year of Publication: 
2020
Series/Report no.: 
SAFE Working Paper 234
Abstract: 
By employing a dynamic model with two limit order books, we show that fragmentation is associated with reduced competition among liquidity suppliers and lower picking-off risk of limit orders. Due to these countervailing channels, the impact of fragmentation on liquidity and welfare differs with asset volatility: when volatility is high (low), liquidity and aggregate welfare in a fragmented market are higher (lower) than in a single market. However, fragmentation always shifts welfare away from agents with exogenous trading motives and towards intermediaries. We empirically corroborate our model’s predictions about liquidity. Our model reconciles the mixed results in the empirical literature.
Subjects: 
Fragmentation
Competition
Liquidity
Price Efficiency
JEL: 
G10
G12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.