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Transparency in the equity market: Evidence from a natural experiment

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  • Chiou, Wan-Jiun Paul
  • Serrano, Alejandro

Abstract

Regulators promote market transparency as a way to lower transaction costs and boost liquidity. However, in theory, it can hinder trading in certain circumstances as some investors may prefer a degree of opaqueness. The existing evidence on its benefits is inconclusive and depends on the market scenarios. This study aims to shed light on the issue by examining the effects of implementing the National Market System (NMS) as an exogenous shock on post-trade transparency and transaction costs. Using 11 years of data from 2834 firms on NASDAQ, we find that the NMS improved post-trade transparency, leading to a reduction in quoted and percentage spreads. Our results provide insights for creating effective policies to maintain fairness, order, and stability in the stock market.

Suggested Citation

  • Chiou, Wan-Jiun Paul & Serrano, Alejandro, 2024. "Transparency in the equity market: Evidence from a natural experiment," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1348-1368.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pa:p:1348-1368
    DOI: 10.1016/j.iref.2023.08.025
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    More about this item

    Keywords

    Trading costs; Transparency; Trading anonymity;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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