Innovations in Secondary Markets and their Impact on Market Quality

This subproject is concerned with the effects of the entry of new competitors on characteristics of secondary equity markets. These new entrants benefit from their superior ability to exploit technological innovations as compared to incumbent investment firms. The characteristics under study, liquidity and information efficiency, are the two major qualities of secondary markets. These two characteristics are naturally interlinked. Liquidity affects the transaction costs associated with all investors, as well as the ability of fundamental investors to benefit from private information. Information efficiency, which is affected by the latter, is crucial for firms’ ability to use market prices in decision-making.