Splitting Orders

Bernhardt, Dan; Hughson, Eric

doi:10.1093/rfs/10.1.69

Cited by 87 publications

(57 citation statements)

References 11 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…However, we find that the aggregate price schedule faced by the traders has a smaller slope (as defined by the aggregate liquidity) leading to a more competitive aggregate price schedule. This result is also found in [22]. For an initial low number of market makers, the decrease in individual liquidity (see Figure 1) or the increase (see Figure 2) is sharper for risk neutral than for risk averse market makers.…”

Section: Liquiditysupporting

confidence: 71%

“…[20] and [21] look at risk averse market makers, however, their main focus is on an inter-dealer markets. Finally, [22] are closer to our analysis. They study the competition between market makers for the duopoly case.…”

supporting

confidence: 73%

“…Firstly, on a purely theoretical basis, we generalize [17] and [22] to the cases where there are N > 2 risk averse market makers. To the best of our knowledge, the dealers' risk aversion has not been incorporated in any analysis for the type of model we are dealing with, i.e.…”

mentioning

confidence: 99%

See 2 more Smart Citations

Strategic Market Making and Risk Sharing

Boco

Germain

Rousseau³

2017

JMF

View full text Add to dashboard Cite

We analyze the result of allowing a risk averse trader to split his order among risk averse market makers. We find that the market makers' aggregate expected utility of profit can increase with the number of market markers and that the aggregate liquidity always increases with it. Despite this latter finding, we show that the cost of trading for the traders increases with the number of market makers as measured by their aggregate expected utility of profit. The larger the market makers' risk aversion, the bigger that cost is. We also find that when the number of market makers tends to infinity, their aggregate expected utility of profit tends to zero. We also obtain that the market makers' individual and aggregate expected utility of profit can increase with their risk aversion and that the trader's expected utility of profit can increase or decrease with the market makers' risk aversion. We offer a potential answer to the ongoing debate concerning the dealers' competitiveness. Indeed, risk aversion reduces competition between market makers as it acts as a commitment for market makers to set higher prices. This commitment is higher the higher the risk aversion.

show abstract

Section: Liquiditysupporting

confidence: 71%

supporting

confidence: 73%

See 1 more Smart Citation

Strategic Market Making and Risk Sharing

Boco

Germain

Rousseau³

2017

JMF

View full text Add to dashboard Cite

show abstract

“…However, this traditional indicator of informed trade becomes questionable in modern limit order markets which make it easy for informed traders to split their orders, thereby hiding their intended trade size (see Bernhardt andHughson, 1997, or Chordia andSubrahmanyam, 2004, for a discussion of "splitting orders"). Chakravarty (2001) and Anand and Chakravarty (2005) empirically investigate the effect of "stealth trading" (Barclay and Warner, 1993) and finds that medium sized trades have the highest price impact.…”

Section: Literaturementioning

confidence: 99%

Whose trades convey information? Evidence from a cross-section of traders

Menkhoff

Schmeling

2010

Journal of Financial Markets

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.

show abstract

“…Dennert (1993), Bernhardt and Hughson (1997) and Biais et al (2000) analyze price competition among market makers when informed and uninformed traders are allowed to split their orders between markets. Bondarenko (2001) derives an equilibrium, in which each market maker behaves as a monopolist facing a residual demand curve resulting from maximizing behavior of the informed trader and the price schedules offered by the competitors.…”

Section: Introductionmentioning

confidence: 99%

Insider Trading with Non-Fiduciary Market Makers

Aase

Gjesdal

2016

SSRN Journal

View full text Add to dashboard Cite

The single auction equilibrium of Kyle's (1985) is studied, in which market makers are not fiduciaries. They have some market power which they utilize to set the price to their advantage, resulting in positive expected profits. This has several implications for the equilibrium, the most important being that by setting a relatively modest "fee", the market maker is able to obtain a profit of the order of magnitude, and even better than, a perfectly informed insider. Our model indicates why speculative prices are more volatile than predicted by fundamentals. Noise traders may be uninformed, or partially informed. We analyze a situation where the market maker has private information as well as being non-fiduciary. In our model this leads to a more efficient market where the insider trades less and the market maker's profit increases.

show abstract

Splitting Orders

Cited by 87 publications

References 11 publications

Strategic Market Making and Risk Sharing

Strategic Market Making and Risk Sharing

Whose trades convey information? Evidence from a cross-section of traders

Insider Trading with Non-Fiduciary Market Makers

Contact Info

Product

Resources

About