Does Market Transparency Matter? A Case Study
In: Market Liquidity: Research Findings and Selected Policy Implications
AbstractWe analyse a change in the degree of transparency of MTS, the electronic inter-dealer market for Italian Government bonds, namely the July 1997 move to the anonymity of quotes. Our evidence supports the hypothesis that a decrease in transparency makes liquidity traders worse-off, whereas large/informed traders find it less costly to execute block trades. The evidence is also consistent with the Ãâwaiting gameÃâ hypothesis of Foster and Viswanathan (1996): under anonymity, traders tend to delay their trades in an attempt to acquire information through the order flow. From a public welfare perspective, our results indicate that the move to anonymity has been accompanied by an increase in market liquidity and by a reduction in volatility, a phenomenon that is also partly explained by the growth in ItalyÃâs prospects for early participation in the EMU. The speed of information aggregation on MTS increases, as shown by an improvement of the MTS lead over the futures market. In a European perspective, the current organisation and performance of MTS place the market in a competitive position with respect to other sovereign bond markets and may contribute to their integration under the single currency.
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This item is provided by Bank for International Settlements in its series CGFS Papers chapters with number 11-14.
Other versions of this item:
- Vacca, V. & Scalia, A., 1999. "Does Market Transparency Matter? A Case Study," Papers 359, Banca Italia - Servizio di Studi.
- Antonio Scalia & Valerio Vacca, 1999. "Does Market Transparency Matter? a Case Study," Temi di discussione (Economic working papers) 359, Bank of Italy, Economic Research and International Relations Area.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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