A Comparative Analysis Of Price Formation Process In Securities Markets Under Different Trading Mechanisms

The fundamental research of financial market microstructure theories is the market transaction mechanism and the assets price forming. The financial assets price behavior can be described as the result of economic subject's optimization behavior if research based on the microscopic way. In 1990s, when the study of financial market microstructure just began in foreign countries, many economists devoted themselves to this field. Through years of gathering high frequency transaction data, economists had made great progress by empirical study in many areas, such as the design characteristics of the trading system, the function of market maker, the bid-ask spread, the degree of price fluctuation, the sequential correlation of price and the trading strategy of informed trader and uninformed trader.In our countries, by now the research of the securities markets has been generally restricted to the macroscopic aspect, but this is not enough because the research has not penetrated to the market interior. The research of market microstructure theory indicated the trading mechanisms affected the formation of market price as well as its conductivity, stability, validity and transparency. The securities market microstructure theory aims at the much more complicated formation mechanisms of the securities price rather than that of the ordinary commodities. It emphasizes the function of information and pays more attention to the different influence in price formation in the different trading mechanisms, and probe into the relationship between trading mechanisms and market efficiency, which impels the further development of the equilibrium price theory and makes the economic theory research much close to the reality. Without doubt, the research of the market microstructure from the internal structure of stock market has the important practical and theory value.This thesis takes the trading mechanisms as the research object and analyzes the concrete characteristics of the securities trading mechanisms and the securities price formation process in the different trading mechanisms. On the basis of this analysis, market efficiency under the different trading mechanisms is compared theoretically. The basic conclusions are: The different trading mechanisms have different effect in the securities price forming process as well as market efficiency. In order-driven system, continuous auction has the strong fluidity and the transparency, whereas call auction has the better validity and the stability. Comparing order-driven and quote- driven system, as the existence of market maker, quote- driven system has the better fluidity and the market validity, but because market maker needs the bid-ask spread as compensation for risk, therefore has the higher transaction cost.