Why do larger orders receive discounts on the london stock exchange?

Dan Bernhardt, Vladimir Dvoracek, Eric Hughson, Ingrid M. Werner

Research output: Contribution to journalReview articlepeer-review


We argue that competition between dealers in a classic dealer market is intertemporal: A trader identifies a particular dealer and negotiates a final price with only the intertemporal threat to switch dealers imposing pricing discipline on the dealer. In this kind of market structure, we show that dealers will offer greater price improvement to more regular customers, and, in turn, these customers optimally choose to submit larger orders. Hence, price improvement and trade size should be negatively correlated in a dealer market. We confirm our model's predictions using unique data from the London Stock Exchange during 1991.

Original languageEnglish (US)
Pages (from-to)1343-1368
Number of pages26
JournalReview of Financial Studies
Issue number4
StatePublished - Dec 2005


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  • HRQoL
  • Stereotactic radiosurgery

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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