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Evidence On Market Microstructure In Indonesian Markets

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  • Fitri Ismiyanti

Abstract

Divergence of opinion causes market prices to differ from intrinsic values. Greater divergence of opinion results in larger bid/ask spreads. This study utilizes Miller’s theory (Miller, 1977) which states that differences between bid and ask prices (price spread) is caused by divergence of opinion between buyers and sellers. This study tests a price spread condition that reflects the existence of agency conflict referred to as stock price premium (SPP) and stock price discount (SPD). The conditions relate to agency cost control mechanisms that result from foreign and domestic institutional ownership. This research employs Structural Equation Modeling (SEM) with multi-group structural equation modeling (MSEM). The results show SPD has lower agency conflict than SPP, and a negative effect of foreign and domestic institutional ownership to agency cost.

Suggested Citation

  • Fitri Ismiyanti, 2010. "Evidence On Market Microstructure In Indonesian Markets," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(3), pages 67-77.
    • Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:3:p:67-77
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Stock price premium; stock price discount; agency cost; ownership;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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