Advanced Search
MyIDEAS: Login

Subscribing to Transparency

Contents:

Author Info

  • He, Yinghua
  • Nielsson, Ulf
  • Guo, Hong
  • Yang, Jiong

Abstract

The paper empirically explores how more trade transparency affects market liquidity. The analysis takes advantage of a unique setting in which the Shanghai Stock Exchange offered more trade transparency to market participants subscribing to a new software package. First, the results show that the additional data disclosure increased trading activity, but also increased transactions costs through wider bid-ask spreads. Thus, in contrast to popular policy belief, the paper finds that more transparency need not improve market liquidity. Second, the paper finds a particularly strong immediate liquidity impact accompanied by altered trading behavior, which suggests a significant impact on institutional traders subscribing relatively early. Lastly, since the effective level of market transparency is bound to depend on how many traders are subscribing to the data, the study can empirically establish the functional form between market-wide transparency and liquidity. The relationship is non-monotonic, which can explain the lack of consensus in the existing literature where each empirical study is naturally confined to specific parts of the transparency domain.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.tse-fr.eu/images/doc/wp/etrie/wp_tse_351.pdf
File Function: Full text
Download Restriction: no

Bibliographic Info

Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 12-351.

as in new window
Length:
Date of creation: Jul 2012
Date of revision: Nov 2013
Handle: RePEc:tse:wpaper:26441

Contact details of provider:
Phone: (+33) 5 61 12 86 23
Web page: http://www.tse-fr.eu/
More information through EDIRC

Related research

Keywords: transparency; liquidity; market microstructure; market design;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Madhavan, Ananth & Porter, David & Weaver, Daniel, 2005. "Should securities markets be transparent?," Journal of Financial Markets, Elsevier, vol. 8(3), pages 265-287, August.
  2. Eom, Kyong Shik & Ok, Jinho & Park, Jong-Ho, 2007. "Pre-trade transparency and market quality," Journal of Financial Markets, Elsevier, vol. 10(4), pages 319-341, November.
  3. Chakravarty, Sugato, 2001. "Stealth-trading: Which traders' trades move stock prices?," Journal of Financial Economics, Elsevier, vol. 61(2), pages 289-307, August.
  4. Bernhardt, Dan & Hughson, Eric, 1997. "Splitting Orders," Review of Financial Studies, Society for Financial Studies, vol. 10(1), pages 69-101.
  5. Madhavan, Ananth, 1995. "Consolidation, Fragmentation, and the Disclosure of Trading Information," Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 579-603.
  6. Hendershott, Terrence & Moulton, Pamela C., 2011. "Automation, speed, and stock market quality: The NYSE's Hybrid," Journal of Financial Markets, Elsevier, vol. 14(4), pages 568-604, November.
  7. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
  8. Terrence Hendershott & Charles M. Jones, 2005. "Island Goes Dark: Transparency, Fragmentation, and Regulation," Review of Financial Studies, Society for Financial Studies, vol. 18(3), pages 743-793.
  9. Zhao, Xin & Chung, Kee H., 2007. "Information Disclosure and Market Quality: The Effect of SEC Rule 605 on Trading Costs," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(03), pages 657-682, September.
  10. John Board & Charles Sutcliffe, 1996. "Trade Transparency and the London Stock Exchange," European Financial Management, European Financial Management Association, vol. 2(3), pages 355-365.
  11. Eric Girardin & Zhenya Liu, 2003. "The Chinese Stock Market: A Casino with 'Buffer Zones'?," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 1(1), pages 57-70.
  12. Barclay, Michael J. & Warner, Jerold B., 1993. "Stealth trading and volatility : Which trades move prices?," Journal of Financial Economics, Elsevier, vol. 34(3), pages 281-305, December.
  13. Barbara Rindi, 2008. "Informed Traders as Liquidity Providers: Anonymity, Liquidity and Price Formation," Review of Finance, European Finance Association, vol. 12(3), pages 497-532.
  14. Ekkehart Boehmer & Gideon Saar & Lei Yu, 2005. "Lifting the Veil: An Analysis of Pre-trade Transparency at the NYSE," Journal of Finance, American Finance Association, vol. 60(2), pages 783-815, 04.
  15. Victoria Saporta & Giorgio Trebeschi & Anne Vila, 1999. "Price formation and transparency on the London Stock Exchange," Bank of England working papers 95, Bank of England.
  16. Gemmill, Gordon, 1996. " Transparency and Liquidity: A Study of Block Trades on the London Stock Exchange under Different Publication Rules," Journal of Finance, American Finance Association, vol. 51(5), pages 1765-90, December.
  17. Chan, Kalok & Menkveld, Albert J. & Yang, Zhishu, 2006. "Information Asymmetry and Asset Prices: Evidence from the China Foreign share discount," Serie Research Memoranda 0005, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  18. Bruno Biais & David Martimort & Jean-Charles Rochet, 2000. "Competing Mechanisms in a Common Value Environment," Econometrica, Econometric Society, vol. 68(4), pages 799-838, July.
  19. Foucault, Thierry & Moinas, Sophie & Theissen, Erik, 2003. "Does Anonymity Matter in Electronic Limit Order Markets?," CEPR Discussion Papers 4091, C.E.P.R. Discussion Papers.
  20. Xiangkang Yin, 2005. "A Comparison of Centralized and Fragmented Markets with Costly Search," Journal of Finance, American Finance Association, vol. 60(3), pages 1567-1590, 06.
  21. Hideaki Sakawa & Masato Ubukata, 2012. "Does Pre-trade Transparency Affect Market Quality in the Tokyo Stock Exchange?," Economics Bulletin, AccessEcon, vol. 32(3), pages 2103-2112.
  22. Yusif Simaan & Daniel G. Weaver & David K. Whitcomb, 2003. "Market Maker Quotation Behavior and Pretrade Transparency," Journal of Finance, American Finance Association, vol. 58(3), pages 1247-1268, 06.
  23. Ma, Xianghai, 1996. "Capital controls, market segmentation and stock prices: Evidence from the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 4(2-3), pages 219-239, July.
  24. Arquette, Gregory C. & Brown Jr., William O. & Burdekin, Richard C.K., 2008. "US ADR and Hong Kong H-share discounts of Shanghai-listed firms," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1916-1927, September.
  25. Pagano, Marco, 1986. "Trading Volume and Asset Liquidity," CEPR Discussion Papers 142, C.E.P.R. Discussion Papers.
  26. Girardin, Eric & Liu, Zhenya, 2005. "Bank credit and seasonal anomalies in China's stock markets," China Economic Review, Elsevier, vol. 16(4), pages 465-483.
  27. Desgranges, Gabriel & Foucault, Thierry, 2005. "Reputation-based pricing and price improvements," Journal of Economics and Business, Elsevier, vol. 57(6), pages 493-527.
  28. Chan, Kalok & Menkveld, Albert J. & Yang, Zhishu, 2007. "The informativeness of domestic and foreign investors' stock trades: Evidence from the perfectly segmented Chinese market," Journal of Financial Markets, Elsevier, vol. 10(4), pages 391-415, November.
  29. M. Ángeles de Frutos & Carolina Manzano, 2002. "Risk Aversion, Transparency, and Market Performance," Journal of Finance, American Finance Association, vol. 57(2), pages 959-984, 04.
  30. Kryzanowski, Lawrence & Lazrak, Skander, 2009. "Liquidity minimization and cross-listing choice: Evidence based on Canadian shares cross-listed on U.S. venues," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(3), pages 550-564, July.
  31. Comerton-Forde, Carole & Frino, Alex & Mollica, Vito, 2005. "The impact of limit order anonymity on liquidity: Evidence from Paris, Tokyo and Korea," Journal of Economics and Business, Elsevier, vol. 57(6), pages 528-540.
  32. Comerton-Forde, Carole & Rydge, James, 2006. "The current state of Asia-Pacific stock exchanges: A critical review of market design," Pacific-Basin Finance Journal, Elsevier, vol. 14(1), pages 1-32, January.
  33. Shmuel Baruch, 2005. "Who Benefits from an Open Limit-Order Book?," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1267-1306, July.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:tse:wpaper:26441. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.