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Semi‐transparency, dealership market, and foreign exchange market quality
Author(s) -
Ding Liang,
Zou Hao,
Addona Vittorio
Publication year - 2012
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2011.11.001
Subject(s) - transparency (behavior) , business , quality (philosophy) , monetary economics , economics , philosophy , epistemology , political science , law
This paper examines the effects of a semi‐transparency event, the introduction of the electronic trading system (EBS), on the market quality of a typical dealership market – the FX market. We find that increasing transparency leads to smaller quote disagreement among dealers and higher trading volume, but the beneficial effects are bigger for uninformed dealers than informed dealers. We also find that information efficiency improves overall in the semi‐transparent system; however, informed dealers are found to quote less aggressively in the more transparent market. We conclude that semi‐transparency raises market quality in general, but that it is the uninformed dealers who benefit more from this increased quality.