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Semi‐transparency, dealership market, and foreign exchange market quality

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  • Liang Ding
  • Hao Zou
  • Vittorio Addona

Abstract

This paper examines the effects of a semi‐transparency event, the introduction of the electronic trading system (EBS), on the market quality of a typical dealership market – the FX market. We find that increasing transparency leads to smaller quote disagreement among dealers and higher trading volume, but the beneficial effects are bigger for uninformed dealers than informed dealers. We also find that information efficiency improves overall in the semi‐transparent system; however, informed dealers are found to quote less aggressively in the more transparent market. We conclude that semi‐transparency raises market quality in general, but that it is the uninformed dealers who benefit more from this increased quality.

Suggested Citation

  • Liang Ding & Hao Zou & Vittorio Addona, 2012. "Semi‐transparency, dealership market, and foreign exchange market quality," Review of Financial Economics, John Wiley & Sons, vol. 21(1), pages 1-13, January.
    • Handle: RePEc:wly:revfec:v:21:y:2012:i:1:p:1-13
    DOI: 10.1016/j.rfe.2011.11.001
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