Liquidity in Times of Competition - Evidence from the European Stock Market

Proceedings of the 13th Pacific Asia Conference on Information Systems (PACIS); Hyderabad, India

Posted: 22 Sep 2009

See all articles by Marco Lutat

Marco Lutat

Goethe University Frankfurt Faculty of Economics and Business Administration

Michael Chlistalla

Goethe University Frankfurt Faculty of Economics and Business Administration

Date Written: September 21, 2009

Abstract

With the Markets in Financial Instruments Directive in effect since November 2007, new trading venues have emerged in European equities trading, among them Chi-X. This paper analyzes the impact of this new market entrant on the home market as well as on consolidated liquidity of French blue chip equities, newly tradable on Chi-X. Our findings suggest that owing to this new competition the home market’s liquidity has enhanced. This is apparently due to the battle for order flow which results in narrower spreads and increased market depth. Given these results, overall liquidity in a consolidated order book is in the French case higher than without the new competitor.

Keywords: electronic market, trading, liquidity, fragmentation, exchanges

JEL Classification: G15

Suggested Citation

Lutat, Marco and Chlistalla, Michael, Liquidity in Times of Competition - Evidence from the European Stock Market (September 21, 2009). Proceedings of the 13th Pacific Asia Conference on Information Systems (PACIS); Hyderabad, India, Available at SSRN: https://ssrn.com/abstract=1476279

Marco Lutat (Contact Author)

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.efinancelab.de/no_cache/team/?user_wiwipubs_pi2[showUid]=548

Michael Chlistalla

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.efinancelab.de/no_cache/team/?user_wiwipubs_pi2[showUid]=686

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