The Role of Pre‐Existing Liquidity in Determining Pricing Efficiency and Liquidity Gains Following the Introduction of SETSmm

17 Pages Posted: 13 Mar 2015

Date Written: March 2015

Abstract

In this paper we examine the impact that the new trading system SETSmm had on market quality measures such as firm value, liquidity and pricing efficiency. This system was introduced for mid‐cap securities on the London Stock Exchange in 2003. We show that there is a small SETSmm return premium associated with the announcement that securities are to migrate to the new trading system. We find that migration to SETSmm also improves liquidity and pricing efficiency and these changes are related to the return premium. We also find that these gains are stronger for firms with high pre SETSmm liquidity and weaker for firms with low SETSmm liquidity.

Keywords: microstructure, pricing efficiency, trading system, liquidity

Suggested Citation

Chelley-Steeley, Patricia, The Role of Pre‐Existing Liquidity in Determining Pricing Efficiency and Liquidity Gains Following the Introduction of SETSmm (March 2015). European Financial Management, Vol. 21, Issue 2, pp. 360-376, 2015, Available at SSRN: https://ssrn.com/abstract=2577043 or http://dx.doi.org/10.1111/eufm.12025

Patricia Chelley-Steeley (Contact Author)

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

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