S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Institute for Financial Research SIFR Research Report Series, Institute for Financial Research

No 55:
A Challenger to the Limit Order Book: The NYSE Specialist

Sabrina Buti ()

Abstract: This paper gives a new answer to the challenging question raised by Glosten (1994): "Is the electronic order book inevitable?". While the order book enables traders to compete to supply anonymous liquidity, the specialist system enables one to reap the benefits from repeated interaction. We compare a competitive limit order book and a limit order book with a specialist, like the NYSE. Thanks to non-anonymous interaction, mediated by brokers, uninformed investors can obtain good liquidity from the specialist. This, however, creates an adverse selection problem on the limit order book. Market liquidity and social welfare are improved by the specialist if adverse selection is severe and if brokers have long horizon, so that reputation becomes a matter of concern for them. In contrast, if asymmetric information is limited, spreads are wider and utilitarian welfare is lower when the specialist competes with the limit order book than in a pure limit order book market.

Keywords: Limit order book; specialist; hybrid market; (follow links to similar papers)

JEL-Codes: D82; G10; G24; (follow links to similar papers)

35 pages, July 15, 2007

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

sifr-wp55.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Anki Helmer ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:sifrwp:0055 This page was generated on 2014-12-14 19:26:51