On the Formation and Structure of International Exchanges
September 14, 1999
Matthew J. Clayton, Bjorn N. Jorgensen and Kenneth A. Kavajecz
ABSTRACT
We investigate the formation and structure of 248 financial exchanges throughout the world. First, we empirically
analyze the determinants of exchange formation as well as the impact of exchange formation on the domestic country's
economy. Second, conditional on formation, we use a probit model to relate the choice of trading mechanism to the
characteristics of the economic environment in which the exchange exists. We find that the main determinants of
exchange formation in a country are the degree of economic freedom, the growth of the economy, the availability
of technology, and the legal system. In addition, we find that the impact of exchange formation on the macro economy
is limited to a reduction in the growth of the monetary aggregates with no significant impact on productivity.
Lastly, our results show that the choice of trading mechanism depends on the country's economic development, the
degree of competition, and the extent of economic freedom.
Clayton: (212) 998-0309 mclayton@stern.nyu.edu
Jorgensen: bjorgensen@hbs.edu
Kavajecz: kavajecz@wharton.upenn.edu
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