Sunshine trading in an African stock market
Purpose – How is liquidity formed in emerging financial markets? Do traders preannounce their orders to attract outside liquidity providers (a practice referred to as sunshine trading)? The purpose of this paper is to study liquidity formation of infrequently traded stocks. It also investigates the role of preopening periods in the formation of liquidity. Design/methodology/approach – The paper focuses on the eight largest stocks traded on the West African Bourse in 2000. The dataset includes all the orders submitted to the market from January 3 to December 13, including their time of placement, limit price, and proposed quantity, and the identity of the broker-dealers who submitted them. The paper analyzes order placement strategies as well as preopening price efficiency and broker-dealers' profits. Findings – The evidence is consistent with broker-dealers engaging in sunshine trading. First, large orders are placed early during the preopening period and are not cancelled. Second, for most of the stocks in our sample, preopening prices reveal information long before trading actually occurs. Third, large volumes are traded without significant price movements. Fourth, the most active brokers' profits are lower than less significant intermediaries' ones, indicating that the former do not manipulate the market. Practical implications – The analysis suggests that the actual liquidity on the West African Bourse is higher than what is indicated by the average state of the order book. This might increase the attractiveness of African stock markets for global portfolio managers. Originality/value – To the best of the authors' knowledge, this paper is the first to empirically study sunshine trading as theoretically analyzed by Admati and Pfleiderer.
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 37 (2011)
Issue (Month): 3 (March)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=mf Email:
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.:
- Sanford J. Grossman & Merton H. Miller, 1988.
"Liquidity and Market Structure,"
NBER Working Papers
2641, National Bureau of Economic Research, Inc.
- de Jong, F.C.J.M. & Nijman, T.E. & Roell, A.A., 1993.
"A comparison of the cost of trading French shares on the Paris Bourse and on SEAQ International,"
1993-29, Tilburg University, Center for Economic Research.
- de Jong, Frank & Nijman, Theo & Roell, Ailsa, 1995. "A comparison of the cost of trading French shares on the Paris Bourse and on SEAQ International," European Economic Review, Elsevier, vol. 39(7), pages 1277-1301, August.
- Lawrence R. Glosten & Paul R. Milgrom, 1983.
"Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders,"
570, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
- de Jong, F.C.J.M. & Nijman, T.E. & Röell, A.A., 1995. "A comparison of the cost of trading French shares on the Paris Bourse and on SEAQ International," Other publications TiSEM 909cfa6b-a4be-4b4b-b214-f, Tilburg University, School of Economics and Management.
- Bruno Biais & Pierre Hillion & Chester Spatt, 1999. "Price Discovery and Learning during the Preopening Period in the Paris Bourse," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1218-1248, December.
- Reena Aggarwal & Pat Conroy, 2000. "Price Discovery in Initial Public Offerings and the Role of the Lead Underwriter," Journal of Finance, American Finance Association, vol. 55(6), pages 2903-2922, December.
- Chan, Louis K C & Lakonishok, Josef, 1997. " Institutional Equity Trading Costs: NYSE versus Nasdaq," Journal of Finance, American Finance Association, vol. 52(2), pages 713-35, June.
- Bessembinder, Hendrik, 2003. "Quote-based competition and trade execution costs in NYSE-listed stocks," Journal of Financial Economics, Elsevier, vol. 70(3), pages 385-422, December.
- Kenny, Charles J. & Moss, Todd J., 1998. "Stock markets in Africa: Emerging lions or white elephants?," World Development, Elsevier, vol. 26(5), pages 829-843, May.
- Charles Cao & Eric Ghysels & Frank Hatheway, 2000. "Price Discovery without Trading: Evidence from the Nasdaq Preopening," Journal of Finance, American Finance Association, vol. 55(3), pages 1339-1365, 06.
- Madhavan, Ananth & Panchapagesan, Venkatesh, 2000. "Price Discovery in Auction Markets: A Look Inside the Black Box," Review of Financial Studies, Society for Financial Studies, vol. 13(3), pages 627-58.
When requesting a correction, please mention this item's handle: RePEc:eme:mfipps:v:37:y:2011:i:3:p:257-274. 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: (Louise Lister)
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.