Publications [#267517] of S. Viswanathan

Journal Articles

1. Viswanathan, S; Wang, JJD, Market architecture: Limit-order books versus dealership markets, Journal of Financial Markets, vol. 5 no. 2 (January, 2002), pp. 127-167, Elsevier BV, ISSN 1386-4181 [doi]
   (last updated on 2026/01/19)

   Abstract:
   We analyze the customer's choice with respect to a limit-order book, a dealership market, and a hybrid market structure that combines the two. The customer's sell order is competed for and divided among a finite number of risk-averse market makers. We present a general characterization of equilibrium in the limit-order book. We show that when the order flow has a linear hazard ratio, the limit order book is preferred by risk neutral customers. However, a risk averse customer will prefer to trade in a dealership market when the number of market makers is large. Further, for risk averse customers, the hybrid market structure can dominate the dealership market and the limit-order book. The results are driven by a tradeoff between two features of the equilibrium demand schedules: a bid-shading effect that operates differently in a limit-order book compared with a dealership market, and a zero-quantity bid-ask spread that is present in the limit-order book only © 2002.