This paper compares liquidity and informational efficiency in a computerized and a traditional open outcry market. We use data for the Nikkei Stock Average futures contract, which is simultaneously being traded on an open outcry market (the Singapore International Monetary Exchange) and a computerized market are less frequent, but larger in size. We also observe that average spreads on the computerized market are larger, but cannot rule out that this result reflects the larger trade size. We further find evidence that price volatility measured over very short intervals in higher on the computerized market, although these estimates could again reflect differences in trade size. When measuring price volatility over longer intervals, we find that both markets are well integrates and present no difference in volatility. Finally, we find that the computerized market attracts additional trading volume in periods of high price volatility. We hypothesize that this relationship, which may reflect preferences of informed traders, is more related to the markets' relative sizes, than to their trading mechanics. We conclude that a viable dual market equilibrium has developed over time that seems to be driven more by transaction costs and other exogenous trading restrictions than by inherent inefficiencies of one of the competing trading technologies.
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