Abstract
In this paper, we consider the relationship between the equilibrium spreads
and the liquidity supplier’s risk aversion coefficient, which represents the degree of risk
aversion in a limit order market and a dealer market. Thus, we analyze which market
is more liquid, the limit order market system or the dealer market system. It is
concluded that the spread in a limit order market is not necessarily narrower than
that in a dealer market, i.e., market liquidity depends on a liquidity supplier’s attitude
to the risky asset.
