Market maker competition and price efficiency: Evidence from China

作者：Zhang, Wei; Huang, Ke; Feng, Xu^*; Zhang, Yongjie

来源：Economic Modelling, 2017, 66: 121-131.

DOI：10.1016/j.econmod.2017.06.004

• Market maker
• Competition
• Price efficiency
• Transaction costs
• Learning

We test the relationship between market maker competition and stock price efficiency. Using the number of market makers as a proxy for competition, the results show a strong positive correlation between competition and stock price efficiency. Moreover, price efficiency is higher when competing market makers have higher research ability. We suggest that market maker competition increases price efficiency through two channels: 1) Competition decreases transaction costs, and 2) Uninformed market makers learn from orders submitted by informed market makers through competition. The latter happens only in the group of market makers with higher experiences. The results imply that the price efficiency can be improved by enhancing the competition of market makers with high research ability and experiences.

• 出版日期2017-11
• 单位天津大学