Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2013-10-03
Number: 13-154/IV/DSF63
Author-Name: Johannes A. Skjeltorp
Author-Workplace-Name: Norges Bank, Norway
Author-Name: Elvira Sojli
Author-Workplace-Name: Rotterdam School of Management, Erasmus University Rotterdam, Duisenberg school of finance
Author-Name: Wing Wah Tham
Author-Workplace-Name: Erasmus University Rotterdam
Title: Identifying Cross-Sided Liquidity Externalities
Abstract: We study the relevance of the cross-sided externality between liquidity makers and takers from the two-sided market perspective. We use exogenous changes in the make/take fee structure, minimum tick-size and technological shocks for liquidity takers and makers, as experiments to identify cross-sided complementarities between liquidity makers and takers in the U.S. equity market. We find that the externality is on average positive, but it decreases with adverse selection. We quantify the economic significance of the externality by evaluating an exchange's revenue after a make/take fee change.
Classification-JEL: G10, G20, G14
Keywords: Liquidity cycle, Liquidity externality; Two-sided markets; Make/take fees
File-Url: https://papers.tinbergen.nl/13154.pdf
File-Format: application/pdf
File-Size: 745550 bytes
Handle: RePEc:tin:wpaper:20130154