Fabio C. Bagliano
Dipartimento di Scienze Economiche e Finanziarie, Università di Torino

Andrea Brandolini
Servizio Studi, Banca d'Italia

Alberto Dalmazzo
Dipartimento di Economia Politica, Università di Siena

                                         Economic Notes, vol. 29, 2000, n.2, p.179-199

This paper analyses the coexistence of two markets for the same shares, a quote-driven market and an order-driven market, as observed for example for the trading of continental shares on the London SEAQ International. The focus is on the trade-off between the uncertain execution price faced by investors on an auction market and the implicit transaction cost represented by the spread in a dealer market. We obtain that those investors who desire to make large trades will prefer to trade with the dealer, while trades of smaller size will be carried out on the auction market. Moreover, we explicitly investigate the interrelations between the two markets showing that the pricing policy followed by a dealer depends on the conditions prevailing on the auction market.

J.E.L. classification numbers: G10, D40
Keywords: auctions, dealers, stock markets                                                                              Download WP PDF (305 kb)