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Journal Article

The Informational Role of Upstairs and Downstairs Trading

Sanford J. Grossman
The Journal of Business
Vol. 65, No. 4 (Oct., 1992), pp. 509-528
Stable URL: http://www.jstor.org/stable/2353195
Page Count: 20
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Informational Role of Upstairs and Downstairs Trading
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Abstract

I assume that customers do not continuously participate in all markets and that intermediaries are repositories of information about the ("unexpressed") demands of currently nonparticipating customers. A model of downstairs (i.e., centralized) versus upstairs (i.e., fragmented) markets is developed based on the assumption that upstairs (and not downstairs) dealers may possess information about unexpressed demand. The equilibrium liquidity of both markets is characterized by the trade-off between the benefits of information about unexpressed demand and the cost to the customer of trading in a fragmented market.

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