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Price Manipulation in Parallel Markets with Different Transparency

We provide a unique test of trading behavior under asymmetric information with parallel markets characterized by different degrees of transparency for the same asset. We consider the Treasury bond market and show that the informed dealers simultaneously place bids in the primary market and sell in the secondary market, repurchasing when the primary market closes. Price manipulation increases market depth in the more transparent market when the more opaque market is open. This supports the experimental findings of Bloomfield and O'Hara and shows how the existence of less transparent markets may increase the liquidity of the more transparent ones.