Transparency, Intraday Order Placement Strategy and Market Performance
We examine the impact of increasing pre-trade transparency using data from the Taiwanese stock market which has experienced a gradual increase in transparency. Specifically, we analyze the influence of transparency on the order placement strategies of individual as well as institutional investors, and its effect on market performance. We find that as the pre-trade transparency increases, the percent of the most aggressive orders decreases significantly while that of the other inside-quote orders increases. Furthermore, the percent of the most conservative orders declines mildly for the institutional investors as market transparency enhances, while the opposite is true for individual investors. Our results indicate greater pre-trade transparency intensifies the competition in order placement strategy especially for institutional investors, at the same time it reduces the extreme orders placement of institutional investors. All investors get smarter in placing orders and reduce unnecessary high-cost orders when the market is more transparent. Compared with institutional investors, the individual investors seem to be more patient as order flow information is disclosed, suggesting liquidity providers are mainly individuals. The result of the intraday analysis shows that the intraday pattern of each order category does not change much as transparency increases, the intraday pattern of the more aggressive orders is U-shaped while that of the least aggressive orders is inverse J-shaped. Generally speaking, greater transparency increases price volatility, while it does not improve market liquidity or efficiency. Further cross-sectional analysis reveals that the gain in liquidity from increasing transparency is positively related with the number of individual investor’s trades in the stock.
transparency order strategy market performance
Tai Ma Yaling Lin Showguay Cheng
Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan Department of Finance, National Sun Yat-sen University
国际会议
西安
英文
1-28
2006-07-17（万方平台首次上网日期，不代表论文的发表时间）