文档介绍：Price Experimentation and
Security Market Structure
J. Chris Leach
Ananth N. Madhavan
The University of Pennsylvania
We examine the role of market makers in facili-
tating price discovery. We show that a specialist
may experiment with prices to induce more infor-
mative order flow, thereby expediting price dis-
covery. Market makers in a multiple-dealer system
unlike a specialist system, do not have the incen-
tives to perform such costly experiments because
of free-rider problems. Consequently, the special-
ist system may provide open markets -
petition fails but at the cost of wider bid-ask
spreads. We analyze the effect of experimentation
on the bid-ask spread and provide an exploratory
analysis of intraday specialist data that is consis-
tent with our price experimentation hypothesis.
The anizational changes in European stock
markets and the emergence of active financial markets
in newly industrialized and munist coun-
tries have focused attention on the importance of
security market Most active securities trade
in markets where market makers expedite trading by
providing price quotations and supplying liquidity on
We thank Lawrence Glosten, Mark Grinblatt, Michel Habib, Richard Kihl-
strom, Paul Kupiec, Seymour Smidt, Chester Spatt (the editor), an anony-
mous referee, and the participants in workshops at Carnegie Mellon Uni-
versity, Cornell University, Pennsylvania State University. Wharton, and the
EFA and AFA meetings for their ments. Assistance from the
Geewax-Terker Research Fund is gratefully acknowledged. Any errors are
entirely our own. Address correspondence to J. Chris Leach and Ananth N.
Madhavan, Department of Finance, The Wharton School, The University of
Pennsylvania, Steinberg Hall–Dietrich Hall, Philadelphia, PA 19104.
1 See Pagano and Röell (1990) and Stoll and Huang (1991) for a discussion
of the issues concerning the merits of alternative market structures; Ma