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Market Architecture and Global Exchange Efficiency: One Design Need Not Fit All Stock Sizes

In: Behavioral Finance The Coming of Age

Author

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  • Peter L. Swan
  • Joakim Westerholm

Abstract

We evaluate the impact of stock market transparency and opacity design features on global trading activity, including the share of traded value for cross-listed stocks. Our methodology relies on a system of simultaneous structural equations estimated for the world’s major exchanges. We find that in relatively opaque markets (those revealing little in the way of market depth), large stocks benefit from lower trading costs, lower volatility and higher traded value. Small stocks do best in highly transparent markets. Although several transparency features benefit all stocks, we conclude that transparency requirements can differ such that one design need not fit all stock sizes. We utilize our exchange ratings from 2000 to 2001 to show that they yield good predictions of subsequent performance over the entire period to the present day.

Suggested Citation

  • Peter L. Swan & Joakim Westerholm, 2019. "Market Architecture and Global Exchange Efficiency: One Design Need Not Fit All Stock Sizes," World Scientific Book Chapters, in: Behavioral Finance The Coming of Age, chapter 7, pages 187-243, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813279469_0007
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    Citations

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    Cited by:

    1. Uwe Helmes & Julia Henker & Thomas Henker & Tom Smith, 2017. "Effect of the ban on short selling on market prices and volatility," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(3), pages 727-757, September.

    More about this item

    Keywords

    Behavioral Economics; Behavioral Finance; Behavioral Macro-Finance; Decision Making; Disposition Effect; Financial Crisis; Financial Decision-Making; Financial Market Anomalies; Fintech; Gender Differences; Heuristics; Information Processing Style; International Contagion Market Design; Monetary Policy; Mood; Optimal Portfolio; Overreaction; Peer-to-Peer Lending; Political Economics; Time Pressure; Transparency;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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