Despite its pervasive presence in world financial markets, there are few studies of interdealer broker markets. This paper examines the trading behavior of primary dealers in the 5-year Treasury note interdealer broker market. The analysis examines trading patterns, announcement effects, and volatility–volume relations. The results show that trading frequency is consistent with activity motivated by public information or dealer's private knowledge of inventory or order flow information. Additionally, although the interdealer broker market is an anonymous electronic compilation and matching system without designated market makers, trade size does not appear to have any information content. Journal of Economic Literature Classification Numbers: C22, G14.

Limit-order trading mechanisms, corporate ownership structure, and incentive structures in the Japanese brokerage industry differ from those in the US in several important ways. This paper exploits these differences to examine the joint and cross-sectional determinants of adverse selection costs, brokerage coverage, and trading activity for a large sample of Japanese firms traded on the Tokyo Stock Exchange. We find that adverse selection costs are associated with firm characteristics but not with ownership characteristics, which implies that adverse selection costs are affected by inside trading rather than inside holdings. We also find that while brokerage coverage reduces adverse selection costs, higher adverse selection costs lead more brokerage firms to enter the market because of the greater profit potential. Finally, we find that causality also runs both ways between brokerage coverage and trading volume: brokerage coverage increases trading volume and trading volume increases brokerage coverage.

We analyze the performance of Japanese open-type stock mutual funds for the 1981–1992 period. The results show that, regardless of the performance measures and benchmarks employed, most of the Japanese mutual funds underperform the benchmarks by between 3.6% and 10.8% per annum. These funds tend to invest more in large stocks with low book-to-market ratios. But this feature does not explain the underperformance. A potential explanation is the dilution effect caused by inflows of funds. In Japan, a new investor of an open-type fund only pays in the after-tax value of the net asset value. We conduct a bootstrap experiment to assess the magnitude of this dilution effect.

Using a unique dataset from the Shanghai Stock Exchange, we study the relation between daily open-to-close stock returns and order imbalances, and the commonality in order imbalances across individual, institutional, and proprietary investors. We find that institutional (proprietary) order imbalances have a larger price impact, but account for a significantly smaller proportion of daily price fluctuations. Commonality is much stronger for individual, rather than institutional (proprietary), order imbalances. Institutional (proprietary) investors favor large capitalization stocks, and co-movement in institutional (proprietary) order imbalances is stronger for these stocks.