Economics, Econometrics and Finance
4 years ago

Market makers can manipulate trades, affecting bid-ask spreads and trading volume.

1 view
SSRN Electronic Journal
Asymmetric Information, Endogenous Illiquidity and Asset Pricing with Imperfect Competition
Hong Liu, Yajun Wang

Paper Summary

Market makers in financial markets can adjust prices based on information and risk, leading to bid-ask spreads that vary with trading volume. This means that bid-ask spreads can decrease with information asymmetry, and may be higher when trading volume is high.

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