Research Discussion Papers, Bank of Finland
No 2/2003:
Do networks in the stock exchange industry pay off? European evidence
Iftekhar Hasan and Heiko Schmiedel
Abstract: The economic theory of network externalities provides the
rationale for this paper, which investigates whether adoption of network
strategies in European stock exchanges creates additional value in the
provision of trading services. Using unbalanced panel data from all major
European exchanges over the period 1996–2000, the paper examines
empirically the presence of network effects on the liquidity, growth, and
efficiency of the exchanges; the transaction cost of trades; and the cost
of exchange operations. The evidence shows that adopting a network strategy
is significantly associated with higher liquidity, growth and efficiency in
the sample markets. Moreover, a network strategy helps to reduce
transaction costs of trades as well as operational costs for stock
exchanges.
Keywords: stock exchanges; network externalities; remote access; Europe; (follow links to similar papers)
JEL-Codes: F36; G15; O52; (follow links to similar papers)
47 pages, January 16, 2003
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