文档介绍：Liquidity Provision
with Limit Orders and
a Strategic Specialist
Duane J. Seppi
Carnegie Mellon University
This article presents a microstructure model of
liquidity provision in which a specialist with
market petes against petitive
limit order book. General solutions, comparative
statics and examples are provided first with un-
informative orders and then when order flows
are informative. The model is also used to ad-
dress two optimal market design issues. The first
is the effect of “tick” size — for example, eighths
versus decimal pricing — on market liquidity.
Institutions trading large blocks have a larger
optimal tick size than small retail investors, but
both prefer a tick size strictly greater than zero.
Second, a hybrid specialist/limit order market
(like the NYSE) provides better liquidity to small
retail and institutional trades, but a pure limit
order market (like the Paris Bourse) may offer
better liquidity on mid-size orders.
The provision of liquidity is the raison d’etreˆ for or-
ganized financial Investors value liquidity
because it facilitates better risk sharing and encour-
I thank Praveen Kumar for many invaluable discussions and Franklin Allen
(the editor), an anonymous referee, David Brown, Bob Dammon, Michael
Fishman, Larry Glosten, Joel Hasbrouck, Craig Holden, Ronen Israel, Greg
Kadlec, Bart Lipman, Ananth Madhavan, Susan Monaco, Uday Rajan, Patrik
Sandas, Stephen Smith, Chester Spatt, Lara Wolfson and seminar participants
at the Atlanta Finance Forum, Carnegie Mellon, the 1995 Indiana Sympo-
sium, University of Michigan, Washington University, Virginia Polytechnic
Institute and the 1995 EFA, 1995 WFA, and 1996 AFA meetings for helpful
comments. Address correspondence to Duane Seppi, Graduate School of
Industrial Administration, Carnegie Mellon University, Pittsburgh, PA 15213.
1 Amihud and Mendelson (1986) and more recently Brennan and Subrah-
manyam (1994) show t