Competition and Information Production in Market Maker Models

Morrison, Alan (2004) Competition and Information Production in Market Maker Models. Journal of Business Finance & Accounting, 31 (7-8). pp. 1171-1190.

Abstract

The microstructure literature models the mechanisms through which fundamental information is incorporated into market prices. This paper extends previous models by endogenising information production and analysing incentives for costly information production. In contrast to the existing literature, increasing the number of informed traders can result in reduced price informativeness. When prices have an allocative role this has welfare consequences: the regulatory implications of a dichotomy between private and public incentives for information gathering are discussed.

Item Type: Article
Keywords: market maker model; information accquisition; competition; liquidity; price informativeness
Subject(s): Corporate reputation
Finance
Centre: Oxford University Centre for Corporate Reputation
Faculty of Finance
Date Deposited: 12 Dec 2011 11:57
Last Modified: 23 Oct 2015 14:06
URI: http://eureka.sbs.ox.ac.uk/id/eprint/1687

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