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Information-Based Trading in Dealer and Auction Markets: An Analysis of Exchange Listings

Published online by Cambridge University Press:  06 April 2009

Hans G. Heidle
Affiliation:
[email protected], Mendoza College of Business, University of Notre Dame, Notre Dame, IN 46556.
Roger D. Huang
Affiliation:
[email protected]. Mendoza College of Business, University of Notre Dame, Notre Dame, IN 46556.

Abstract

Are auction markets or dealer markets better able to identify informed traders? Our analysis of firms that transfer to an alternative exchange structure indicates that traders are more anonymous in a competing dealer market than in an auction environment. Our evidence also shows that the associated changes in the probability of trading with an informed trader are related to changes in the bid-ask spread. The reduction in bid-ask spreads is more pronounced for firms with higher probability of transacting with an informed trader prior to the relocation from a dealer to an auction market.

Type
Research Article
Copyright
Copyright © School of Business Administration, University of Washington 2002

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