Financial Market Design and Equity Premium: Electronic Versus Floor Trading

42 Pages Posted: 29 Nov 2003

See all articles by Pankaj K. Jain

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics

Date Written: February 2004

Abstract

We assemble the dates of announcement and actual introduction of electronic trading by the leading exchange of 118 countries to examine the long term and medium term impact of automation. The dividend growth model suggests a decline in expected returns by 0.08% per month after the introduction of electronic trading. Consistent with this reduction in equity premium in the long run, there is a positive short-term price reaction to the switch. These findings are sustained even after controlling for risk factors, financial integration, economic liberalization, and economic development. The results support the notion that electronic trading enhances the liquidity and informativeness of stock markets leading to a reduction in illiquidity premium.

Keywords: stock exchanges, computerized trading

JEL Classification: G14, G15

Suggested Citation

Jain, Pankaj K., Financial Market Design and Equity Premium: Electronic Versus Floor Trading (February 2004). AFA 2004 San Diego Meetings, Available at SSRN: https://ssrn.com/abstract=470766 or http://dx.doi.org/10.2139/ssrn.470766

Pankaj K. Jain (Contact Author)

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
695
Abstract Views
2,924
rank
39,593
PlumX Metrics