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Informed Trading and Market Structure
Author(s) -
Cai Charlie X.,
Harris Jeffrey H.,
Hudson Robert S.,
Keasey Kevin
Publication year - 2015
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12003
Subject(s) - electronic trading , volatility (finance) , alternative trading system , algorithmic trading , business , adverse selection , stock exchange , open outcry , trading strategy , stock market , financial economics , market microstructure , electronic markets , economics , the internet , finance , order (exchange) , computer science , paleontology , horse , world wide web , biology
We examine London Stock Exchange trading around information releases and link market quality dimensions with market structure during periods with heightened interaction between informed and uninformed traders. We find support for both the hypothesis that automated electronic markets minimise trading costs for liquid stocks and the hypothesis that adverse selection costs are minimised with intermediated trading. We examine how news affects both dealer and electronic systems and find that electronic markets are prone to greater stealth trading and post‐trade volatility, both consistent with the proliferation of algorithmic trading and short‐term volatility events such as the May 6, 2010 ‘flash crash.’