Are Asian exchanges outliers? A market quality criterion

Ranjan R. Chakravarty and Sudhanshu Pani (2021). Are Asian exchanges outliers? A market quality criterion. Investment Management and Financial Innovations, 18(2), 64-78. doi:10.21511/imfi.18(2).2021.06

16 Pages Posted: 6 May 2021

See all articles by Ranjan R. Chakravarty

Ranjan R. Chakravarty

School of Business Management, NMIMS

Sudhanshu Sekhar Pani

School of Business Management, NMIMS

Date Written: April 27, 2021

Abstract

This paper provides a practical, empirical and theoretical framework that allows investment managers to evaluate stock exchanges’ market quality when choosing among
different plausible international trading venues. To compare trading exchanges, it extends the hypothesis of market microstructure invariance to trading across exchanges.
A measure ω, the ratio of the market-wide volatility to microstructure invariance, is
introduced. The paper computes ω for the exchanges around the world. Its value for
the NSE (India) is 24.5%, the Korea Exchange (Korea) is 7.9%, the Shanghai Exchange
(China) is 3.5%, and the Shenzhen Exchange (China) is 4.4%, which is significantly
different from that of major exchanges in the USA (NYSE – 0.8%, NASDAQ – 1.3%)
and Europe (LSE (UK) – 0.4). This country risk dimension clearly identifies which
equity exchanges cannot hold their own direct correlational hedges and therefore mandatorily require derivative positions, and has significant implications for the decision
making of global long-short equity asset allocators in the Asian listed equity markets.

Keywords: global asset allocation, international diversification, country risk, trading venues, market quality of stock exchanges, market microstructure

JEL Classification: G11, G14, G15

Suggested Citation

Chakravarty, Ranjan and Pani, Sudhanshu Sekhar, Are Asian exchanges outliers? A market quality criterion (April 27, 2021). Ranjan R. Chakravarty and Sudhanshu Pani (2021). Are Asian exchanges outliers? A market quality criterion. Investment Management and Financial Innovations, 18(2), 64-78. doi:10.21511/imfi.18(2).2021.06, Available at SSRN: https://ssrn.com/abstract=3840266

Ranjan Chakravarty

School of Business Management, NMIMS ( email )

V. L. Mehta Road,
Vile Parle (W),
Mumbai, 400 056
India

Sudhanshu Sekhar Pani (Contact Author)

School of Business Management, NMIMS ( email )

V. L. Mehta Road,
Vile Parle (W),
Mumbai, 400 056
India

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
13
Abstract Views
117
PlumX Metrics