Liquidity and Competition in Unregulated Markets: The New York Stock Exchange Before the SEC

50 Pages Posted: 24 Feb 2009

See all articles by Caroline Fohlin

Caroline Fohlin

Emory University; Centre for Economic Policy Research (CEPR)

Thomas Gehrig

University of Vienna

Tobias Bruenner

University of Lincoln (UK)

Date Written: February, 12 2009

Abstract

Despite reputedly widespread market manipulation and insider trading, we find surprisingly high liquidity and low transactions costs for actively traded securities on the NYSE between 1890 and 1910, decades before SEC regulation. Moreover, market makers behave largely as predicted in theory: stocks with liquid markets and competitive market makers (cross-trading at the rival Consolidated Exchange) trade with substantially lower quoted bid-ask spreads and with less anti-competitive behavior (price discreteness). Effective spreads, illiquidity, and volume all improve monotonically over time. Notably, the asymmetric information component of effective spreads increases in relative and absolute terms from 1900 to 1910.

Suggested Citation

Fohlin, Caroline and Gehrig, Thomas and Bruenner, Tobias, Liquidity and Competition in Unregulated Markets: The New York Stock Exchange Before the SEC (February, 12 2009). Available at SSRN: https://ssrn.com/abstract=1341629 or http://dx.doi.org/10.2139/ssrn.1341629

Caroline Fohlin

Emory University ( email )

Dept. of Economics
Atlanta, GA Georgia 30322
United States
4047276363 (Phone)

HOME PAGE: http://https://scholar.google.com/citations?user=Ma08bxEAAAAJ&hl=en

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Thomas Gehrig (Contact Author)

University of Vienna ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

Tobias Bruenner

University of Lincoln (UK) ( email )

Lincoln LN2
United Kingdom

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