Informed trading and market structure

Cai, Charlie X.; Harris, Jeffrey H.; Hudson, Robert S.; Keasey, Kevin

Abstract

We examine London Stock Exchange trading around information releases and link market quality dimensions with market structure during periods with heightened interaction between informed and uninformed traders. We find support for both the hypothesis that automated electronic markets minimise trading costs for liquid stocks and the hypothesis that adverse selection costs are minimised with intermediated trading. We examine how news affects both dealer and electronic systems and find that electronic markets are prone to greater stealth trading and post-trade volatility, both consistent with the proliferation of algorithmic trading and short-term volatility events such as the May 6, 2010 ‘flash crash.'

Citation

Cai, C. X., Harris, J. H., Hudson, R. S., & Keasey, K. (2015). Informed trading and market structure. European Financial Management, 21(1), 148-177. https://doi.org/10.1111/eufm.12003

• Journal Article Type: Article
• Online Publication Date: Feb 28, 2013
• Publication Date: 2015-01
• Deposit Date: Nov 13, 2014
• Journal: European Financial Management
• Print ISSN: 1354-7798
• Electronic ISSN: 1468-036X
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 21
• Issue: 1
• Pages: 148-177
• DOI: https://doi.org/10.1111/eufm.12003
• Public URL: https://hull-repository.worktribe.com/output/470920
• Publisher URL: https://onlinelibrary.wiley.com/doi/full/10.1111/eufm.12003