Trading Technology and Stock Market Liquidity: A Global Perspective

20 Pages Posted: 18 Dec 2006 Last revised: 9 Aug 2015

See all articles by William F. Johnson

William F. Johnson

University of Memphis - Finance

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics

Date Written: December 18, 2006

Abstract

We characterize the technological revolution that swept financial markets around the world and assess its profound effects. Computerization and satellite communication have transformed the industrial organization of stock exchanges and dramatically improved secondary market liquidity. Trading turnover has increased manifold and transaction costs have declined sharply due to advances in technology and an increase in number of stock market participants supplying liquidity. Greater liquidity in equities has made stocks a more attractive investment vehicle for investors thus lowering the cost of equity for listed companies. While technology has had profound positive effects for investors and companies, there have also been negative consequences associated with these innovations. We identify some determinants of these positive and negative variations in the effects of automation on liquidity.

Suggested Citation

Johnson, William Fount and Jain, Pankaj K., Trading Technology and Stock Market Liquidity: A Global Perspective (December 18, 2006). Available at SSRN: https://ssrn.com/abstract=952322 or http://dx.doi.org/10.2139/ssrn.952322

William Fount Johnson

University of Memphis - Finance ( email )

United States

Pankaj K. Jain (Contact Author)

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

Memphis, TN 38152
United States

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