A Theoretical Analysis of Institutional Investors

Andrew Snell, Ian Tonks

Research output: Contribution to journalArticlepeer-review


This paper compares trading costs for institutional investors subject to liquidity shocks, in auction and dealer markets. The batch auction restricts the institutions' ability to exploit informational advantages because of competition between institutions when they simultaneously submit orders. This competition lowers aggregate trading costs. In the dealership market, competition between traders is absent but private information is revealed by observing the flow of successive orders and so reduces aggregate trading costs. We analyse the relative effects on trading costs of competition and information revelation in the two systems and derive a parameter inequality which determines which system has lower costs.
Original languageEnglish
Article number30
Pages (from-to)567
Number of pages597
JournalThe Economic Journal
Issue number113
Publication statusPublished - Jul 2003


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