Price Formation and Transparency on the London Stock Exchange

Bank of England Working Paper No. 95

36 Pages Posted: 18 May 1999

Abstract

This paper contributes to the empirical market microstructure literature on the London Stock Exchange (LSE) by producing model-based estimates of the spread and its components. The paper applies the same approach to test for changes in the determinants of price formation following the January 1996 change in the market's publication rules. The results suggest that order-processing costs are a far more important determinant of the LSE spread than the literature has so far presumed. Consistent with existing research findings, no discernible effect of post-trade transparency on market liquidity was found.

JEL Classification: G12

Suggested Citation

Saporta, Victoria and Trebeschi, Giorgio and Vila Wetherilt, Anne, Price Formation and Transparency on the London Stock Exchange. Bank of England Working Paper No. 95, Available at SSRN: https://ssrn.com/abstract=162628 or http://dx.doi.org/10.2139/ssrn.162628

Victoria Saporta (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Giorgio Trebeschi

Bank of England

Threadneedle Street
London, EC2R 8AH
United Kingdom

Anne Vila Wetherilt

Bank of England ( email )

Monetary Instruments and Markets Division
Threadneedle Street
London EC2R 8AH
United Kingdom
020-7601-4649 (Phone)
020-7601-5953 (Fax)

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