Topic
Third market
About: Third market is a research topic. Over the lifetime, 1031 publications have been published within this topic receiving 27138 citations.
Papers published on a yearly basis
1 / 2
Papers
TL;DR: In this article, the authors provided an analysis of an idealized electronic open limit order book and showed that the order book has a small-trade positive bid-ask spread, and limit orders profit from small trades.
Abstract: Under fairly general conditions, the article derives the equilibrium price schedule determined by the bids and offers in an open limit order book. The analysis shows: (1) the order book has a small-trade positive bid-ask spread, and limit orders profit from small trades; (2) the electronic exchange provides as much liquidity as possible in extreme situations; (3) the limit order book does not invite competition from third market dealers, while other trading institutions do; (4) If an entering exchange earns nonnegative trading profits, the consolidated price schedule matches the limit order book price schedule. THIS ARTICLE PROVIDES AN analysis of an idealized electronic open limit order book. The focus of the article is the nature of equilibrium in such a market and how an open limit order book fares against competition from other methods of exchanging securities. The analysis suggests that an electronic open limit order book mimics competition among anonymous exchanges. As a result, there is no incentive to set up a competing anonymous dealer market. On the other hand, any other anonymous exchange will invite "third market" competition. These conclusions suggest that an electronic open limit order book of the sort considered here has a chance of being a center of significant trading volume. The analysis does not imply that an electronic limit order book will be, or should be the only trading institution. It does suggest some of the characteristics that an alternative institution should have in ord'er to successfully compete with an electronic exchange. The results are obtained in a fairly general environment, and hence would appear to be robust. The motivation for the article lies in recent developments in information processing technology, the interest in institutional innovation in the securities industry, and the uncertainty about future developments in trading
1,157 citations
Posted Content•
TL;DR: In this article, market liquidity is modeled as being determined by the demand and supply of immediacy and willingness to bear risk during the time period between the arrival of final buyers and sellers.
Abstract: Market liquidity is modeled as being determined by the demand and supply of immediacy. Exogenous liquidity events coupled with the risk of delayed trade create a demand for immediacy. Market makers supply immediacy by their continuous presence. and willingness to bear risk during the time period between the arrival of final buyers and sellers. In the long run the number of market makers adjusts to equate the supply and demand for immediacy. This determine the equilibrium level of liquidity in the market. The lower is the autocorrelation in rates of return, the higher is the equilibrium level of liquidity.
1,090 citations
1,018 citations
Patent•
30 May 1990
TL;DR: In this article, an automated system for managing one or more large investor portfolios containing both cash and numerous, diversified securities in a real-time environment provides added liquidity to the securities markets while maintaining predetermined portfolio objectives for each portfolio.
Abstract: An automated system for managing one or more large investor portfolios containing both cash and numerous, diversified securities in a real time environment provides added liquidity to the securities markets while maintaining predetermined portfolio objectives for each portfolio. The disclosed system uses data processing equipment to place buy and sell orders on securities markets and with automated brokers to execute trade directly between users of the system and external markets. Holders of such large, diversified portfolios have usually been long-term investors. The system allows active market participation by such investors whereby they provide added liquidity and depth to the securities markets while overcoming problems caused by trader identification and the inability to enter, change or execute orders in a real time environment. The system monitors and analyzes a variety of factors which effect trading decisions in a vast number of securities. Such factors include other security trades, price and size quotations and financial ratios for particular securities. This information is further analyzed in relationship to each investor portfolio using the system to determine what transactions might benefit the portfolio by seeking to provide an incremental return while accommodating the basic portfolio objectives. These objectives may be changed at the election of the investor at any time. Orders representing such transactions are entered by the system and executed in real time either internally between system users or externally with computerized brokers and/or stock exchanges and markets.
884 citations
TL;DR: Although institutional investors have a preference for large capitalization stocks, over time they have shifted their preferences toward smaller, riskier securities as mentioned in this paper, and evidence also suggests that recent growth in institutional investment combined with this shift in preferences helps explain why markets in general and smaller stocks in particular, have exhibited greater firm-specific risk and liquidity.
Abstract: Although institutional investors have a preference for large capitalization stocks, over time they have shifted their preferences toward smaller, riskier securities. These changes in aggregate preferences have arisen primarily from changes in the preferences of each class of institution, rather than changes in the importance of different classes. Evidence also suggests that recent growth in institutional investment combined with this shift in preferences helps explain why markets in general, and smaller stocks in particular, have exhibited greater firm-specific risk and liquidity in recent years. Additional analyses suggest that institutional investors moved toward smaller securities because such securities offer "greener pastures." Copyright 2003, Oxford University Press.
802 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
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| 2025 | 2 |
| 2024 | 2 |
| 2023 | 14 |
| 2022 | 16 |
| 2021 | 2 |
| 2020 | 2 |