11) „Continuous Trading or Call Auctions: Revealed Preferences of Investors at the Tel Aviv Stock Exchange“
Avner Kalay, Li Wei and Avi Wohl
First Version: November 1998
This version: April 2001

Abstract: We use the move of Israeli stocks from call auction trading to continuous trading to show that investors have a preference for stocks that trade continuously. When large stocks move from call auction to continuous trading, the small stocks that still trade by call auction experience a significant loss in volume relative to the overall market volume. As small stocks move to continuous trading, they experience an increase in volume and positive abnormal returns because of the associated increase in liquidity. Overall, though, a move to continuous trading increases the volume of large stocks relative to small stocks.
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12) „Cross-Listing and the Geography of Firms’ Ownership“
Thierry Foucault & Thomas Gehrig
April, 2002

Abstract: With the integration of capital markets a trend towards multiple listings of securities in geographically separate markets can be witnessed worldwide (Pagano, Roell, Zechner, 2000). In particular, an increasing number of non-US companies seem to acquire a New York listing. Likewise recently privatized companies in the so-called transition countries typically seek a London or another European listing (Bortolotti, Fantini, Scarpa, 2000). Moreover, stock exchanges compete aggressively for domestic and foreign listings (Gehrig, Stahl, Vives, 1996). This paper analyzes issuers’ incentives to list their securities on different exchanges and draws some implications for global market integration as well as the competition between stock exchanges....
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13) „Does an Electronic Stock Exchange Need an Upstairs Market?“
Hendrik Bessembinder & Kumar Venkataraman

Abstract: We examine block trades on the Paris Bourse to test several theoretical predictions regarding upstairs trading, and exploit cross-sectional variation in “crossing rules” on the Paris Bourse to provide evidence on their relevance. Paris provides an excellent setting to test the implications of upstairs intermediation models, because its electronic limit order market closely resembles the downstairs markets envisioned by theorists.
We present direct evidence in support of Grossman’s (1992) prediction that upstairs brokers lower execution costs by tapping into pools of unexpressed liquidity, as actual execution costs upstairs are less than one third as large as would be anticipated if block trades were executed against displayed liquidity in the downstairs market. Consistent with prior analyses, the Paris data also supports the Seppi (1990) hypothesis that upstairs brokers certify trades as uninformed.
We find that participants in stocks with less restrictive crossing rules agree to outside-the-quote executions for more difficult trades and at times when downstairs liquidity is lacking. These likely represent trades that could not have been otherwise completed, suggesting that market quality can be enhanced by allowing participants more flexibility to execute blocks at prices outside the quotes, a consideration particularly relevant to U.S. markets in the wake of decimalization.
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14) „Does Privatization Enhance or Deter Small Enterprise Formation?“
Daniel Berkowitz & Jonathan Holland
June 2001

Abstract: Small enterprises are a growth engine in post-socialist economies. We argue that privatization can either enhance or deter small enterprise formation via its impact on the local business environment. We then show that in Russia small-scale privatization deterred small enterprise formation, while large-scale privatization enhanced it.
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15) „Equity Trading Systems in Europe - A survey of recent changes“
Marianne Demarchi and Thierry Foucault
This draft: February 1998

Abstract: This paper provides a survey of recent changes in the market microstructure of the 5 largest European Stock Exchanges. We first provide a brief statistical overview of European equity markets. Then we discuss how the introduction of the Investment Services Directive and the development of institutional trading have prompted European Stock Exchanges to modify their trading systems since 1994. We show that these exchanges have converged to a similar market organization. In this organization, trading takes place in an order-driven market but trading rules can vary according to the type of securities. We also describe the remaining differences between the trading systems, in particular with respect to the consolidation of the order flow and transparency.
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16) „Financial crisis prevention: A psychological approach from behavioural finance“
Masami Hayashi

Abstract: Taking the example of the East Asian crisis, this paper attempts to explain, from a psychological perspective, why similar financial crises have happened one after another in emerging markets recently. It analyses Japanese bankers’ behaviour in the face of the ‘East Asian Miracle’ and the following financial crisis, finds that their ‘quasi-rational’ behaviour inevitably led the affected countries to the crisis, and shows that this can be explained well through a psychological approach from behavioural finance. Policy recommendations deducted from the study include regulations and cooperation at the international level, and the application of behavioural finance to the establishment of financial crisis prevention measures.
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17) „Financial development and stock market performance“
Harris Dellas & Martin K. Hess

Abstract: The level of financial development is an important determinant of the performance of capital markets. We examine stock returns in a cross section of emerging and mature markets (49 countries) over 1980-99. Returns in financially underdeveloped countries have been somewhat lower, but significantly more volatile and less closely linked to – and influenced by – world stock returns. This implies that the stock markets of financially underdeveloped countries may have contributed to higher global risk diversification but not to higher returns. Two features seem responsible for these patterns – Higher transaction costs and greater legal (political) uncertainty.
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18) „Floor versus Screen Trading: Evidence from the German Stock Market“
Erik Theissen
December 1999

Abstract: The last decade has witnessed a dramatic increase in both the number and the market share of screen-based trading systems. Electronic trading systems do offer lower operating costs and the possibility of remote access to the market. On the other hand, arguments based on the anonymity of electronic trading systems suggest that adverse selection may be a more severe problem and that, therefore, bid-ask spreads may be higher. The present paper addresses the issue of transaction costs in floor and computerized trading systems empirically. In Germany, floor and screen trading for the same stocks exist in parallel. Both markets are liquid and operate simultaneously for several hours each day.
An analysis of the bid-ask spreads reveals that the electronic trading system is relatively less attractive for less liquid stocks. The market shares of the competing systems reveal a similar pattern. The market share of the electronic trading system is negatively related to the total trading volume of the stock, is positively related to the difference between spreads on the floor and in the screen trading system and is at least partially negatively related to return volatility. We further document that spreads in the electronic trading system respond more heavily to changes in return volatility and that the adverse selection component of the spread is larger. We discuss implications our results have for the design of electronic trading systems.
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19) „FROM STATE TO MARKET: A SURVEY OF EMPIRICAL STUDIES ON PRIVATIZATION“
William L. Megginson and Jeffry M. Netter

Abstract: The political and economic policy of privatization, broadly defined as the deliberate sale by a government of state-owned enterprises (SOEs) or assets to private economic agents, is now in use worldwide. Since its introduction by Britain’s Thatcher government in the early 1980s to a thenskeptical public (that included many economists), privatization now appears to be accepted as a legitimate – often a core — tool of statecraft by governments of more than 100 countries. Privatization is one of the most important elements of the continuing global phenomenon of the increasing use of markets to allocate resources.
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20) „How large is liquidity risk in an automated auction market?
Pierre Giot & Joachim Grammig
September 21, 2002

Abstract: We introduce a new empirical methodology that takes account of liquidity risk in a Value-at-Risk framework, and quantify liquidity risk premiums for portfolios and individual stocks traded on the automated auction market Xetra which oper- ates at various European exchanges. When constructing liquidity risk measures we allow for the potential price impact incurred by the liquidation of a portfolio. We study the sensitivity of liquidity risk towards portfolio size and VaR time horizon, and interpret its diurnal variation in the light of market microstructure theory.
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21) „The Informational Content of an Open Limit Order Book“
Charles Cao & Oliver Hansch & Xiaoxin Wang
February 18, 2004

Abstract: We assess the informational content of an open limit order book from three directions: (1) Does the limit order book allow better inferences about a security's value than simply the best bid and o er prices from the first step of the book? If it does, how much additional information can be gleaned from the book? (2) Are imbalances between the demand and supply schedules informative about future price movements? and (3) Does the shape of the limit order book impact traders' order submission strategies? Our empirical evidence suggests that the order book beyond the first step is informative{its information share is about 30%. The imbalance between demand and supply from step 2 to 10 provides additional power in explaining future short-term returns. Finally, traders do use the available information on the state of the book, not only from the first step, but also from other steps, when developing their order submission strategies.
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22) „Information Asymmetry, Informed Trading, and Order Imbalance around Daily Limit-
Hits: Evidence from Transactions Data and the Limit Order Book of the Kuala Lumpur Stock Exchange“
S. Ghon Rhee, Soon Huat Chan and Kenneth A. Kim

Abstract: This study investigates an emerging stock market that employs a wide price limit system. We examine the impacts of price limits on (i) information asymmetry, (ii) arrival rates of informed traders, and (iii) order imbalance. Using both trade-totrade transaction data and the limit order book, we compile empirical evidence that price limits do not improve information asymmetry, delays the arrival rate of informed traders, and exacerbates order imbalance. These results suggest that price limit mechanisms may not improve market efficiency, but impose serious costs even if the limit band is wide.
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23) „Institutional Design and Liquidity on Stock Exchanges“
Pankaj Jain

Abstract: This paper analyzes the impact of various institutional features of stock exchanges on their performance in a unified framework. We assemble the institutional design features like organizational structure, trading mechanism, trade-execution system, transparency, degree of market fragmentation, age, and ownership for 51 major exchanges around the world.
For these exchanges, representing over 90% of world’s market capitalization, their institutional features are linked with various performance measures namely – quoted bidask spreads, effective spreads, realized spreads, volatility, and trading turnover. Simultaneous-system-of-equations model is used to account for inter-linkages between the different measures of performance. We find that hybrid systems have lower spreads and volatility than pure limit order systems, which in turn are have lower spreads and volatility than pure dealership systems. Stock exchanges with bid-ask spreads are those that have narrower tick sizes, competitive market makers, electronic limit order book, automatic execution of trades, centralized trading, and enforcement of insider trading laws. The results do not provide any support to the theories that predict better liquidity for monopolistic specialist system, or electronic open limit order book with no dealers. Spreads are directly related to return volatility but inversely related to market capitalization on a global basis. The analysis has important policy implications for security lawmakers implementing fairness and transparency, companies seeking global listings, investors forming trading strategies, and stock exchanges altering their institutional design to increase competitiveness.
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24) „The Internationalization of Financial Services: Issues and Lessons for Developing Countries“
World Bank

Abstract: This book presents fourteen contributions analyzing different aspects of the internationalization of financial services. Some of the papers concentrate on theoretical aspects, some investigate cross-country patterns while others examine specific country experiences with internationalization. All of them focus on whether the benefits of internationalization of financial services exceed potential costs. Together, they shed light on the variety and importance of the effects of internationalization on domestic financial systems.
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25) „Intraday Predictability of Market Microstructure Statistics and Technical Trading Rules"
Lawrence Kryzanowski

Abstract: The short-run predictability of price changes and quote revisions, using market microstructure statistics and three popular technical trading rules, is examined using intraday data. The average level and quality of traders' information is captured by price and other microstructure variables (particularly volume and number of trades), respectively. Historical trade information is useful in predicting current stock price movements and quote revisions, and technical trading signals based on past price patterns have predictive ability only for quote revisions. Very little incremental predictive power from adding technical trading rule signals (such as moving average crossings, trading range breaks and relative strength) to the prediction equation containing the market microstructure effects. Simulated program trading based on technical trading rules is not profitable in the short-term.
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26) „Investment analysis and price formation in securities markets“
Michael J. Brennan & Avanidhar Subrahmanyam

Abstract: This paper investigates the relation between the number of analysts following a security and the estimated adverse selection cost of transacting in the security, controlling for the effects of previosly identified determinants of liquidity. Using intraday data for the year 1988, we find tha greater analyst following tends to reduce adverse selection costs based on the Kyle (1985) notion of market depth. This result is consistent with the analysis of Admati and Pfleiderer (1988). Estimates fo structural parameters of a version of the Admati and Pfleiderer model of endogenuous information acquisition provide qualified support for the model.
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27) „Key microstructure and policy issues for emerging stock markets – what have we learned?“
Christopher Green

Abstract: This paper surveys the main theoretical and empirical literature on emerging stock markets, in order to identify the key microstructure elements and policy issues that relate to the development of stock markets in developing countries. Some findings from research on developed stock markets are used to provide a contrast, where necessary. After exploring issues relating to market efficiency, the paper focuses on the main microstructure issues such as trading systems and their performance, costs of trading, volatility and liquidity. Specific policy issues are explored by examining the relationship between stock markets and the macroeconomic policy framework. The paper concludes by putting forward some promising research ideas.
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28) „Limit Order Book as a Market for Liquidity“
Thierry Foucault & Ohad Kadan

Abstract: We develop a dynamic mod elofanord er-d rivenmarket populated b y d isc retionary liquid ity traders. T hese trad ersmust trad e, yet c anchoose the type oford er and are fully strategic intheir d ec ision.Trad ersd i®er b y their impatienc e: lesspatient trad ersd emand liquid ity,more patient trad ersprovid e it.T hree equilib rium types are ob tained - the type isd etermined b y three parameters: the d egree ofimpatienc e ofthe patient trad ers,which we interpret asthe c ost ofexec utiond elay inprovid ing liquid ity; their proportioninthe population, which d eterminesthe d egree ofc ompetitionamong the liquidity provid ers; and the tick size, which isthe cost ofthe minimalpric e improvement.Despite itssimplic ity,the mod elgeneratesa rich set of empiric alpred ic tionsonthe relationb etw eenmarket parameters,time to execution, and spread s.We argue that the ec onomic intuitionofthismod elisrob ust,thusits main results will remain in more general models.
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29) „Liquidity and Information-Based Trading on the Order Driven Capital Market: The Case of the Prague Stock Exchange“
Libor Nemeček

Abstract: This paper investigates the relation between liquidity and information-based trading in the context of an order-driven auction. A model similar in spirit to that of Easley et al. (1996) is used to determine how often new information occurs and how it influences the composition of orders submitted to the market. The risk of informationbased trading is estimated for a sample of Prague Stock Exchange listed stocks. The empirical results agree with previous findings that the risk of information-based trading is lower for more active stocks. Surprisingly, information based trading is apparently less common on the recently created Prague Stock Exchange than on more wellestablished markets.
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30) „Liquidity Risk and expected stock returns“
Lubos Pastor et al

Abstract: This study investigates whether market wide liquidity is a state variable important for asset pricing. We find that expected stock returns are related cross-sectionally to the sensitivities of returns to fluctuations in agregate liquidity. Our monthly liquidity measure, an average of individual stock measures estimated with daily data, relies on the principle that order flow induces greater return reversals when liquidity is lower. Over a 34 year period, the average return on stocks with high sensitivities to liquidity exceeds that for stocks with low sensitivities by 7,5% annually, adjuested for exposures to the market return as well as size, value and momentum factors.
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31) „Liquidity supply and demand in limit order markets“
Burton Hollifield, Robert A Miller, Patrik Sandas and Joshua Slive

Abstract: We model a trader’s decision to supply liquidity by submitting limit orders or demand liquidity by submitting market orders in a limit order market. The best quotes and the execution probabilities and picking-off risks of limit orders determine the price of immediacy. The price of immediacy and the trader’s willingness to pay for immediacy determine the trader’s optimal order submission, with the trader’s willingness to pay for immediacy depending on the trader’s valuation for the stock. We estimate the execution probabilities and the picking off risks using a sample from the Vancouver Stock Exchange to compute the price of immediacy. The price of immediacy changes with market conditions – a trader’s optimal order submission changes with market conditions. We combine the price of immediacy with the actual order submissions to estimate the unobserved arrival rates of traders and the distribution of the traders’ valuations. High-realized stock volatility increases the arrival rate of traders and increases the number of value traders arriving – liquidity supply is more competitive after periods of high volatility. An increase in the spread decreases the arrival rate of traders and decreases the number of value traders arriving – liquidity supply is less competitive when the spread widens.
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32) „Liquidity, trading size, and the coexistence of dealership and auction markets“
Fabio C. BaglianoyAndrea Brandolini z Alberto Dalmazzox

Abstract: 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-o¤ 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.
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33) „Market Liquidity and Trading Activity“
TARUN CHORDIA, RICHARD ROLL, and AVANIDHAR SUBRAHMANYAM*

Abstract: Previous studies of liquidity span short time periods and focus on the individual security. In contrast, we study aggregate market spreads, depths, and trading activity for U.S. equities over an extended time sample. Daily changes in market averages of liquidity and trading activity are highly volatile and negatively serially dependent. Liquidity plummets significantly in down markets. Recent market volatility induces a decrease in trading activity and spreads. There are strong dayof- the-week effects; Fridays accompany a significant decrease in trading activity and liquidity, while Tuesdays display the opposite pattern. Long- and short-term interest rates influence liquidity. Depth and trading activity increase just prior to major macroeconomic announcements.
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34) „Market microstructure: A survey“
Ananth Madhavan

Abstract: Market microstructure studies the process by which investors' latent demands are ultimately translated into prices and volumes. This paper reviews the theoretical, empirical and experimental literature on market microstructure relating to: (1) price formation, including the dynamic process by which prices come to impound information, (2) market structure and design, including the relation between price formation and trading protocols, (3) Transparency, the ability of market participants to observe information about the trading process, and (4) Applications to other areas of xnance including asset pricing, international finance, and corporate finance.
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35) „Market Structure, Intermediation and Liquidity“
Thorsten Freihube / Jan P. Krahnen / Erik Theissen
April 2001

Abstract: We present a summary assessment of experimental and empirical results focussing on a single question: How does the design of a securities market affect its performance, notably its transaction costs. A new methodology for measuring transaction costs is developed that allows a direct comparison between batched auctions (call markets) and continuous auctions. Empirical results are based on data from the Frankfurt stock exchange. They identify an important role played by marketmakers (specialists) relating to transaction costs, and price variability. Experimental results yield additional results concerning the importance of competitive pressure for transaction costs on marketmaker markets.
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36) „Noise in the Price Discovery Process: A Comparison of Periodic and Continuous Auctions“
Mark Coppejans

Abstract: Price volatility and market efficiency is examined for an automated periodic auction mechanism and a continuous automated auction, using data on five futures contracts which obviate ambiguities due to periods of non-trading. Theoretical results suggest equality of price volatility across periodic and continuous mechanisms, depending on order arrival rates. The empirical analysis consists of direct comparisons via variance ratios and variance ratio tests conditional on a model of price and value adjustment. The periodic auction yields the same volatility as the continuous market for a stock index contract, while the periodic market is associated with lower volatility for currency futures, consistent with order flow considerations. Tests fail to reject market efficiency for the index contract and three out of four currency futures, regardless of trading mechanism.
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37) „Order Flow Dynamics: Evidence from the Helsinki Stock Exchange“
Kaj Hedvall

Abstract: This paper investigates the dynamics of the order flow in a limit order book using a unique data set from the Helsinki Stock Exchange that encompasses the entire order book structure, including the dealer identities. The study focuses on the informational content of the order flow and on a set of potential explanations of the autocorrelation of order submission. We find that order flow is autocorrelated and that non-informational and informational order flow is distinguished by the traders. We find that strategic order splitting is more common than imitation in this transparent market structure.
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38) „Order Imbalances and Market Efficiency: Evidence from the Taiwan Stock Exchange"
Yi-Tsung Lee; Yu-Jane Liu; Richard Roll; Avanidhar Subrahmanyam

Abstract: Data from the Taiwan Stock Exchange identify the originator of each submitted order, and there are no designated dealers or specialists. We study marketable order imbalances, i.e., the net order flow resulting from trades that demand immediacy. We distinguish imbalances by trader type (individuals, domestic institutions, foreign institutions) and by the usual size of each trader’s order. Day-to-day persistence in order imbalance is strongest for small foreign institutions and weakest for large individual traders. Such persistence emanates both from splitting orders over time and from herding, and there is little evidence that aggregate price pressures from such persistence last beyond a trading day, indicating that de facto market making is quite effective. We attempt to discern which types of traders are de facto liquidity-providers, which are likely to be informed, and which trade for liquidity reasons. The evidence indicates that all trader classes are successful market makers, large domestic institutions conduct the most informed trades, and large individuals are noise or liquidity traders.
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39) „Price Discovery in Initial Public Offerings and the Role of the Lead Underwriter"
REENA AGGARWAL and PAT CONROY

Abstract: We examine the price discovery process of initial public offerings ~IPOs! using a unique dataset. The first quote entered by the lead underwriter in the five-minute preopening window explains a large proportion of initial returns even for hot IPOs. Significant learning and price discovery continues to take place during these five minutes with hundreds of quotes being entered. The lead underwriter observes the quoting behavior of other market makers, particularly the wholesalers, and accordingly revises his own quotes. There is a strong positive relationship between initial returns and the time of day when trading starts in an IPO.
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40) „Prices, Liquidity, and the Information Content of Trades"

Abstract: We investigate the effect of asymmetric information on prices and liquidity by analyzing trades, quotes, spreads and depths. Information content should increase with trade size and the degree of information asymmetry of the trading period. Results show that price and liquidity effects are significantly associated with information content as measured by both trade size and the timing of the trade relative to information events. Results are stronger for purchases than sales. Quoted prices are better measures of information effects than transaction prices, because they control for bid-ask bounce. Finally, trades that are known a priori not to contain information have no impact on prices and liquidity, even when they are very large in size.
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41) „Registered trader participation during the Toronto Stock Exchange’s pre-opening session“
Ryan Daviesy, November 13, 2000

Abstract: This paper documents order submission strategies during the Toronto Stock Exchange’s pre-opening session. I find that the registered trader (RT) actively participates in the market opening despite not being able to set the opening price directly and not having an apparent informational advantage. I find that RT opening trades are profitable, are able to moderate overnight price changes, and may be motivated, in part, by inventory adjustment concerns. I focus on interlisted stocks that simultaneously open for trading under two different mechanisms and show how the comparative levels of pre-trade market transparency of each exchange impacts RT profits and participation.
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42) „Stock Markets in Transition Economies“
Stijn Claessens, Simeon Djankov, and Daniela Klingebiel

Abstract: Stock markets are underdeveloped in transition economies Given the transformation in ownership that needed to take place from the state to the private sector many observers considered well-functioning stock markets essential to the process of transition. Indeed, 20 of 26 transition economies have established formal stock markets in the past 10 years. Yet many of these markets are undeveloped or dormant. Even the most developed markets in Central Europe are small market capitalization does not exceed $15 billion in the Czech Republic, Hungary, or Poland. Among the members of the Commonwealth of Independent States (CIS), with the exception of Russia, market capitalization is less than $1 billion. As a share of GDP, market capitalization matches levels in other emerging markets only in Estonia and Hungary. And there is little trading activity in most transition economy stock markets, with value traded as a share of market capitalization averaging less than 30 percent.
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43) „Technology, automation, and productivity of stock exchanges: International evidence“
Iftekhar Hasan – Markku Malkamäki; Heiko Schmiedel

Abstract: The paper stresses on the importance of understanding the operational choices, strategies, and performances of stock exchanges as regular operating firms (Arnold et al (1999), and Pirrong (1999)) Using unbalanced panel data on 49 stock exchanges over the period 1989–1998, the paper traces the productivity of stock exchanges over time and across different types and groups of exchanges. We find significant variability in respect of the productivity – revenue and cost efficiency – across these exchanges. On average, North American exchanges are found to be most cost and revenue efficient. However, our findings also indicate that European exchanges have improved the most, in respect of cost efficiency, while exchanges in South America and Asia-Pacific regions are found to be lagging as regards both cost and revenue estimations. The evidence also indicates that investment in technology-related developments effectively influenced cost and revenue efficiency. Moreover, organisational structure and market competition are found to be significantly associated with both cost and revenue efficiency for the exchanges studied, whereas market size and quality are related only to revenue efficiency.
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44) „Ten Years After . . . Transition and Economics“
GÉRARD ROLAND

Abstract: This paper attempts to portray a synthesis of what has been learned in the past 10 years with regard to the transition process. It contrasts the mainstream “Washington consensus” view of transition with the “evolutionary institutionalist” perspective. It argues that the latter gives a more adequate and complete picture both of the transition processes and of economic systems and is of better help to prevent serious transition failures.
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45) „A note on trading mechanism and securities value: The analysis of rejects from continuous trade“
Beni Lauterbach

Abstract: We examine 97 stocks that moved from continuous trade back to single daily auctions. The response to exit from continuous trade is almost a mirror image of the entry response documented in Amihud et al., 1997 (Amihud, Y., Mendelson, H., Lauterbach, B., 1997. Journal of Financial Economics 45, 365±390). Upon exiting continuous trade, stock liquidity, price accuracy, and value drop. An exception is, however, identi®ed. Ten stocks that were omitted from continuous trade within three months of their addition have negative excess returns upon entry into continuous trade and positive excess returns upon exit. These immediate rejects had relatively low volumes before entering continuous trade, which suggests that for thinly traded stocks simple unassisted continuous trade may not be optimal.
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46) „The Automation of Capital Markets“
Arnold Picot, Christine Bortenlaenger and Heiner Roehrl

Abstract: The Capital Market. Before focusing on the automation process of the capital market, an explanation will be given as to why this market was chosen for research purposes. Principally, other markets such as the market for transportation services (e.g. Anner, 1993; Berlage and Buellinger, 1994) or waste (e.g. Meyer, Schober, and Siefert, 1994) also would have been suitable. But the following attributes predetermine the capital market as the appropriate research object...
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47) „The Changing Microstructure of European Equity Markets“
Marco Pagano
April 1997, revised version

Abstract: In the last decade, the increased competition between European stock exchanges has reduced the cost of trading and increased the variety of trading mechanisms. The London Stock Exchange, which initiated the competition in 1986 by setting up the SEAQ-I market, attracted considerable trading volume in Continental equities in the late 1980s. Later, however, Continental exchanges recovered most of the trading volume from London upon restructuring their auction systems so as to offer very low trading costs, greater transparency and continuous trading via an automated order book. At the same time, the spreads quoted by SEAQ-I dealers increased considerably. Lately, potential competition by continuous auction systems is threatening even the market for British equities, and prompting the London Stock Exchange to replace its former SEAQ system with an automated order book. As in Continental Bourses, this automated auction system is expected to run in parallel with a dealership market for large trades. So trading systems appear to be converging towards a dualistic structure all over Europe. The paper documents these developments, and considers how the competition between European exchanges is likely to evolve and which opportunities and dangers the future may hold for them.
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48) „The Components of the Bid-Ask Spread: A General Approach“
Roger D. Huang; Hans R. Stoll

Abstract: A simple time-series market microstructure model is constructed within which existing models of spread components are reconciled. We show that existing models fail to decompose the spread into all its components. Two alternative extensions of the simple model are developed to identify all the components of the spread and to estimate the spread at which trades occur. The empirical results support the presence of a large order processing component and smaller, albeit significant, adverse selection and inventory components. The spread components differ significantly according to trade size and are also sensitive to assumptions about the relation between orders and trades.
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49) „The Equivalence of Screen Based Continuous-Auction and Dealer Markets"
Ian Tonks

Abstract: The conventional response given to explain the difference between an auction and dealer markets is that auction markets are order driven and dealer markets are quote driven. However this paper argues that there is no fundamental difference between these two alternative trading systems, in the sense that the same set of equilibrium prices will obtain in each market. In dealer markets liquidity is supplied by licensed intermediaries who provide competing price quotes, whereas the auction market allows the free entry of any trader to supply liquidity by permitting the submission of limit orders. In both cases investors face a competitive price schedule, which they can then trade against, and competition between traders in the auction market or between dealers in the dealer market should ensure that liquidity suppliers make no excess profits.
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50) „The Future of Stock Exchanges in Emerging Economies: Evolution and Prospects"
Stijn Claessens & Daniela Klingebiel & Sergio L. Schmukler

Abstract: We study the determinants of stock market development and the growing migration of capital raising, listing, and trading activity to international exchanges. Economies with better fundamentals have larger and more liquid markets. As fundamentals improve, however, the degree of migration to international exchanges also increases. This leads to gains for corporations in the form of lower costs and more liquidly traded shares. Fully-fledged local stock exchanges are thus becoming less necessary for many economies...
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51) „THE IMPACT OF AUTOMATION ON LIQUIDITY, VOLATILITY, STOCK RETURNS AND EFFICIENCY :EVIDENCE FROM THE TUNISIAN STOCK MARKET"
Olfa BENOUDA SIOUD and Dorra MEZZEZ HMAIED

Abstract: INTRODUCTION
The development of the economies of developing countries was for a long time braked by the insufficiency of financing. Indeed, their financial systems essentially based on the banking sector, didn't permit any more to fill the need of firms that had to face more and more menacing international competition with the liberalization policy adopted by most of these countries.
In order to stimulate their financial markets and to favour the creation of new sources of financing, some of these countries decided to undertake reforms to improve their market microstructure, taking into account international norms and experiences of major stock exchanges.
Several stock exchanges decided to automate their trading systems in order to take advantage of existing technology (Black (1971). This wave of reforms concerned also emerging markets such as markets of Israel in 1987 (Amihud, Mendelson & Lauterbach (1997), Singapore in 1989 (Naidu & Rozeff (1994)) and Morocco in 1998 (Derrabi (1998)) which introduced change in their trading systems in order to attract order flows and increase liquidity through improved market transparency and enhanced quality of execution. In 1996, the Tunis stock market (Bourse des Valeurs Mobilieres de Tunis) computerized its trading system and eliminated the traditional trading floor on which brokers exchange securities.
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52) „Toward Deep and Liquid Markets: Lessons from the Open and Close at the London Stock Exchange“
Andrew Ellul & Hyun Song Shin

Abstract: The London Stock Exchange operates a dual system for trading securities. As well as the official SETS order book that opens and closes through a call auction, there is a parallel “off-exchange” dealership system that trades the same securities. We document evidence that the call auction system must overcome a coordination problem among traders if it is to minimize the risk of unfilled orders. This implies that (i) traders are reluctant to use the SETS system for small and medium sized stocks and (ii) this reluctance is particularly evident on low activity days. We develop a model of “thick market externalities” to explain this phenomenon. Our results suggest that the dealership system fulfils an important function that complements the order book.
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53) „Tale of Two Trading Venues: Electronically Delivered Orders vs. Floor Brokered Orders on the American Stock Exchange“
Puneet Handa & Robert A. Schwartz

Abstract: At the American Stock Exchange (Amex), electronically-routed orders (referred to as "system orders") from "upstairs" traders interact on the Amex trading floor with each other and with orders "worked" by brokers. In addition, we see that brokers receive orders from clients and other traders who have chosen to involve a floor broker as an intermediary in the trading process. The quality of the trading outcomes for system orders, compared to brokered orders, differs considerably, and these results have important implications for market structure design.
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54) „Who Benefits from an Open Limit-Order Book?“
Shmuel Baruch

Abstract: The NYSE has opened the limit-order book to off-exchange traders during trading hours. In this paper, we address the welfare implications of the recent change in market structure. We model a market similar to the single-price auction that the exchange uses to open the trading day. We consider two different environments. In the first, only the specialist can see the limit order book, while in the second the information in the book is available to all traders. We then compare equilibria. We find that traders who demand liquidity are better off when the book is open, while traders who supply liquidity (limit-order traders and the specialist) are better off when the book is closed. We also find that, on average, the opening price is more informative in the open book environment. The empirical implications with an open limit-order book are:
1) Opening prices are more informative;
2) Price impacts of market orders are smaller; and
3) The adverse-selection
component of price impacts of market orders are larger.
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