Behavioral heterogeneity and financial markets: Locked/crossed quotes under informationally efficient pricing

Artikel

Market professionals and regulators have been concerned by locked/crossed quotes (negative quoted spreads) for years. To ease the concerns that locked/crossed quotes may cause confusion or instability in financial markets and to promote market efficiency, the Securities and Exchange Commission implemented rules that ban locked/crossed quotes. We consider a competitive financial market that does not contain the factors considered by market professionals and regulators consider as the origins of locked/crossed quotes. We find that if there are at least three types of traders in this financial market, locked/crossed quotes can arise naturally under efficient pricing. These locked/crossed quotes reflect information transmitted in financial markets, facilitating price discovery. Hence, regulations banning locked/crossed quotes are inappropriate, as these regulations may harm the efficiency of price discovery.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Cogent Economics & Finance ; ISSN: 2332-2039 ; Volume: 5 ; Year: 2017 ; Issue: 1 ; Pages: 1-22 ; Abingdon: Taylor & Francis

Classification and Topics

• Classification: Wirtschaft
• Subject: adverse selection ; locked/crossed quotes ; behavioral heterogeneity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Xu, Youzong ; Li, Bo
• Event: Veröffentlichung
• (who): Taylor & Francis
• (where): Abingdon
• (when): 2017

Further information

• DOI: doi:10.1080/23322039.2017.1384524
• Handle: http://hdl.handle.net/10419/194727
• Last update: 10.03.2025, 11:41 AM CET