EFFECT OF THE INTERNET ON FINANCIAL MARKETS

Hal R. Varian
School of Information Management and Systems
University of California, Berkeley
September 1998



In the first part of this scientific paper is all about the retail transactions in financial services. The stock market trading is one of the killer apps of the Internet. The three kinds of brokers where broker E - Trade (Electronic Trading), second is the full service brokers and the last one is the discount brokerages. The full service broker can one trade 1-2 times per year, while the discount broker can deal 4-6 times a year, while the electronic trade broker or using the internet in trading deals 25 trades a year. Mortgage refinancing has benefited by the advances if information technology or the Internet. By using the internet the transaction cost will be lessen because borrowers can easily pay or fill-up forms online and the processing is automated. The big companies and the investors will invest or trade through internet because wherever you are you can use the internet in monitoring your business. The goal of this paper is to know what will happen if the cyber markets will occur in the financial markets. The first cyber market in the internet was the Iowa Presidential Market. There are many exotic markets, one of them is the Robin Hanson’s Idea Futures page. This kind of market is about giving a question ahead from the actual event. Wall Street is securitizing virtually everything that produces a predictable stream of cash. Typhoon insurance. Tax liens. Loans for used cars and fraternity houses. Fax machine leases. Mutual-fund fees. Electronic agents for trading will likely be widely used. This is unlikely to cause a problem unless there is significant specialization on one type of trading agent. Electronic markets should aim for transparency in transactions, which is one of the best defenses against instability.


References
http://people.ischool.berkeley.edu/~hal/Papers/brookings-paper.pdf