• Login
    View Item 
    •   Repository
    • Open Access Articles
    • Open Access Journals
    • Business and Economics
    • View Item
    •   Repository
    • Open Access Articles
    • Open Access Journals
    • Business and Economics
    • View Item
    JavaScript is disabled for your browser. Some features of this site may not work without it.

    Market Making, Liquidity Provision, and Attention Constraints: An Experimental Study

    Thumbnail
    View/Open
    Full Text (3.265Mb)
    Date
    2017-06
    Author
    Cabrera, Juan F.
    Metadata
    Show full item record
    Abstract
    This paper uses an experimental electronic market to investigate the effect of limited attention on the market maker’s ability to provide liquidity and, thus, on aggregate market liquidity. I find that higher demands on the market maker’s attention worsen her ability to provide liquidity but do not reduce the aggregate level of market liquidity. This effect is only significant in less active markets. Furthermore, the aggregate level of market liquidity remains unaltered across both highly active and inactive markets, suggesting a reactive strategy by informed traders who step in to compete with market makers during high information intensity periods when their attention allocation efforts are compromised. In fact, in markets with a higher information value, the effect of attention constraints on the liquidity provision ability of market makers is greater. This implies that informed traders may not only exploit their informational advantage against uninformed traders but they may also use it to reap a higher share of liquidity-based profits. Finally, the market maker’s trading performance measured by her profit share and ability to manage her inventory worsens when demands on her attention are greater.
    URI
    https://doi.org/10.4236/tel.2017.74061
    http://hdl.handle.net/123456789/1752
    Collections
    • Business and Economics [102]

    University of Embu copyright ©  2021
    Contact us | Send Feedback
    Library ER 
    Atmire NV
     

     

    Browse

    All of RepositoryCommunities & CollectionsBy Issue DateAuthorsTitlesSubjectsThis CollectionBy Issue DateAuthorsTitlesSubjects

    My Account

    LoginRegister

    University of Embu copyright ©  2021
    Contact us | Send Feedback
    Library ER 
    Atmire NV