The Dynamics of Dealer Markets Under Competition

  • Author(s): THOMAS S. Y. HO, HANS R. STOLL
  • Published: Apr 30, 2012
  • Pages: 1053-1074
  • DOI: 10.1111/j.1540-6261.1983.tb02282.x

ABSTRACT

The behavior of competing dealers in securities markets is analyzed. Securities are characterized by stochastic returns and stochastic transactions. Reservation bid and ask prices of dealers are derived under alternative assumptions about the degree to which transactions are correlated across stocks at a given time and over time in a given stock. The conditions for interdealer trading are specified, and the equilibrium distribution of dealer inventories and the equilibrium market spread are derived. Implications for the structure of securities markets are examined.

Jump to menu

Main Navigation

Search the Site / Journal

Search Keywords

Search Tips

Members' Login

Credentials

Members' Options

Site Footer

View Mobile Version