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Market Transparency, Investor Strategies, and Trading Costs: Evidence from the Taiwan Stock Exchange

Author

Listed:
  • Shu-Fan Hsieh
  • Hsiu-Kuei Chen
  • Tai Ma

Abstract

This paper investigates the effect of changes in pre-trade transparency on trading strategies and trading costs by examining the effects of increased transparency in the limit order book at the Taiwan Stock Exchange. Our results demonstrate that pre-trade transparency makes the market more liquid, because investors are more willing to provide liquidity, thus reducing the trading costs for liquidity demanders. Furthermore, we find evidence that investors, especially institutional traders, attempt to manage limit-order exposures by splitting orders and canceling orders faster; thus, pre-trade transparency does not increase their trading costs. Our findings suggest that pre-trade transparency affects trading strategies and trading costs differently according to the type of investor.

Suggested Citation

  • Shu-Fan Hsieh & Hsiu-Kuei Chen & Tai Ma, 2012. "Market Transparency, Investor Strategies, and Trading Costs: Evidence from the Taiwan Stock Exchange," Accounting and Finance Research, Sciedu Press, vol. 1(1), pages 180-180, May.
    • Handle: RePEc:jfr:afr111:v:1:y:2012:i:1:p:180
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    References listed on IDEAS

    as
    1. Flood, Mark D, et al, 1999. "Quote Disclosure and Price Discovery in Multiple-Dealer Financial Markets," The Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 37-59.
    2. Anand, Amber & Chakravarty, Sugato & Martell, Terrence, 2005. "Empirical evidence on the evolution of liquidity: Choice of market versus limit orders by informed and uninformed traders," Journal of Financial Markets, Elsevier, vol. 8(3), pages 288-308, August.
    3. 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, April.
    4. Ronald L. Goettler & Christine A. Parlour & Uday Rajan, 2005. "Equilibrium in a Dynamic Limit Order Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2149-2192, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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