Research objectives and content
The project will investigate the co-existence between auction- and dealershipmarkets. The driving force to offer both trading systems at one exchange is to regain the market share lost to London. The question whether exchanges should organize both trading systems is important from a policy viewpoint. In particular, is it optimal for traders to have one big financial dealershipmarket (e.g. in London) or should different financial markets co-exist. We expect two forces to determine the outcome. The first is fragmentation. The more markets co-exist, the more trade becomes fragmented, lowering liquidity. The second force is competition. Co-existence of financial markets generates competitive forces enhancing liquidity and reducing the cost of capital. We will discuss the effects of co-existence on transparency, liquidity, cost of capital and trading volume.
Training content (objective, benefit and expected impact)
CentER at Tilburg University has a tradition in game theory and econometrics. In addition, it is well known for its expertise on the organization of financial markets. Professrs de Jong, Nijman and Roell affiliated at Tilburg University are experts in the analysis of competition between financial markets. Their expertise concerns theoretical as well as empirical work. Interaction with them is a guarantee for a successful project. The data for the empirical analysis are available at CentER. Links with industry / industrial relevance (22)
The project has links with financial markets. In particular, it is relevant for the continental exchanges as well as the London stock exchange.