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Fragmentation and stability of markets

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journal contribution
posted on 16.09.2015, 11:13 by Daniel Ladley, Terje Lensberg, Jan Palczewski, Klaus Reiner Schnke-Hoppé
Trading skills are highly rewarded in practice but largely ignored in theoretical models of financial markets. This paper demonstrates the importance of skills by examining their interaction with market fragmentation and market stability. We consider a computational model where traders' abilities to accurately price assets are endogenous. In contrast to models that do not consider skills, we find that centralising markets can lead to higher price volatility and less resilience to shocks because it increases the equilibrium proportion of unskilled traders.

History

Citation

Journal of Economic Behavior and Organization, 2015, 119, pp. 466–481

Author affiliation

/Organisation/COLLEGE OF SOCIAL SCIENCE/Department of Economics

Version

AM (Accepted Manuscript)

Published in

Journal of Economic Behavior and Organization

Publisher

Elsevier

issn

0167-2681

Acceptance date

15/09/2015

Copyright date

2015

Available date

25/03/2017

Publisher version

http://www.sciencedirect.com/science/article/pii/S0167268115002565

Notes

The file associated with this record is under embargo until 18 months after publication, in accordance with the publisher's self-archiving policy. The full text may be available through the publisher links provided above.

Language

en

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