Fragmentation and stability of markets

Daniel Ladley, Terje Lensberg, Jan Palczewski, Klaus Reiner Schenk-Hoppe

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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’ 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.
Original languageEnglish
Pages (from-to)466-481
Number of pages15
JournalInternational Journal of Economic Behavior and Organization
Publication statusPublished - Nov 2015


  • skills
  • market fragmentation
  • volatility
  • market resilience


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