@article{e159c5cd3ae6407888567cb0e55c4a64,
title = "Fragmentation and stability of markets",
abstract = "Trading skills are highly rewarded in practice but largely ignored in theoretical models of financial markets. This paper demonstrates the importance of skills by examining their interaction with market fragmentation and market stability. We consider a computational model where traders{\^a}€{\texttrademark} abilities to accurately price assets are endogenous. In contrast to models that do not consider skills, we find that centralising markets can lead to higher price volatility and less resilience to shocks because it increases the equilibrium proportion of unskilled traders.",
keywords = "skills, market fragmentation, volatility, market resilience",
author = "Daniel Ladley and Terje Lensberg and Jan Palczewski and Schenk-Hoppe, {Klaus Reiner}",
note = "Financial support by the Swiss National Center of Competence in Research {\^a}Financial Valuation and Risk Management{\^a} (NCCR FINRISK) and the European Commission under the Marie Curie Intra-European Fellowship Programme (grant agreement PIEF-GA-2010-274454) as well as computing time from the Norwegian Metacenter for Computational Science (NOTUR), the Leicester Grid Computer ALICE and the Lagrange computing cluster at NHH are gratefully acknowledged. This paper was completed during a visit of the last three authors to the Hausdorff Research Institute for Mathematics at the University of Bonn in the framework of the Trimester Program Stochastic Dynamics in Economics and Finance.",
year = "2015",
month = nov,
doi = "10.1016/j.jebo.2015.09.013",
language = "English",
volume = "119",
pages = "466--481",
journal = "International Journal of Economic Behavior and Organization",
issn = "2328-7608",
publisher = "Science Publishing Group",
}