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Trading Volume and Asset Liquidity

Trading Volume and Asset Liquidity Abstract Since the depth and liquidity of a market depend on the entry decisions of all potential participants, each trader assesses them according to conjectures about entry by others. If trade is equally costly across markets, this externality leads to the concentration of trade on one market. If not, it can produce multiple conjectural equilibria, some where trade concentrates on one market and others where large traders resort to a separate market or to search for a trading partner. While fragmentation is welfare-reducing in the two-market case, no such ranking is possible if it involves off-exchange search. * " This paper draws upon Chapter 2 of my Ph.D. thesis at M.I.T., and has appeared in an earlier version as CEPR Discussion Paper No. 142. I thank Olivier Blanchard, Peter Diamond, and two anonymous referees for insightful comments and suggestions. Financial support from the Sloan Grant and the Consiglio Nazionale delle Ricerche is gratefully acknowledged. This content is only available as a PDF. © 1989 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Quarterly Journal of Economics Oxford University Press

Trading Volume and Asset Liquidity

The Quarterly Journal of Economics , Volume 104 (2) – May 1, 1989

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Publisher
Oxford University Press
Copyright
© 1989 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
ISSN
0033-5533
eISSN
1531-4650
DOI
10.2307/2937847
Publisher site
See Article on Publisher Site

Abstract

Abstract Since the depth and liquidity of a market depend on the entry decisions of all potential participants, each trader assesses them according to conjectures about entry by others. If trade is equally costly across markets, this externality leads to the concentration of trade on one market. If not, it can produce multiple conjectural equilibria, some where trade concentrates on one market and others where large traders resort to a separate market or to search for a trading partner. While fragmentation is welfare-reducing in the two-market case, no such ranking is possible if it involves off-exchange search. * " This paper draws upon Chapter 2 of my Ph.D. thesis at M.I.T., and has appeared in an earlier version as CEPR Discussion Paper No. 142. I thank Olivier Blanchard, Peter Diamond, and two anonymous referees for insightful comments and suggestions. Financial support from the Sloan Grant and the Consiglio Nazionale delle Ricerche is gratefully acknowledged. This content is only available as a PDF. © 1989 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Journal

The Quarterly Journal of EconomicsOxford University Press

Published: May 1, 1989

There are no references for this article.