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Forgery, market liquidity, and demat trading: Evidence from the national stock exchange in India

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  • Aney, Madhav S.
  • Banerji, Sanjay

Abstract

We analyse the impact of the introduction of a new technology on the National Stock Exchange in India that allowed trading of stocks without the need to transfer paper share certificates (demat trading). We document a decrease in the bid-ask spread and an increase in trading volume following its introduction particularly for those stocks that were previously illiquid. We present evidence that suggests that the primary channel for the increase in liquidity was the elimination of the risk of being sold forged securities as the clearing system took on the risk of reimbursing buyers of forged shares at the introduction of demat trading.

Suggested Citation

  • Aney, Madhav S. & Banerji, Sanjay, 2024. "Forgery, market liquidity, and demat trading: Evidence from the national stock exchange in India," BOFIT Discussion Papers 7/2024, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:296486
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    References listed on IDEAS

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    More about this item

    Keywords

    Liquidity trading; Bid-ask Spead; Frauds; Market manipulations;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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