Market Architecture and Global Exchange Efficiency: One Design Need not Fit all Stock Sizes

47 Pages Posted: 23 Mar 2007

See all articles by Peter L. Swan

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

P. Joakim Westerholm

University of Sydney Business School

Date Written: December 15, 2006

Abstract

We evaluate the impact of stock market transparency and opacity design features on global trading activity, including the share of traded value for cross-listed stocks. Our methodology relies on a system of simultaneous structural equations estimated for the world's major exchanges. We find that in relatively opaque markets (those revealing little in the way of market depth), large stocks benefit from lower trading costs, lower volatility and higher traded value. Small stocks do best in highly transparent markets. Although several transparency features benefit all stocks, we conclude that transparency requirements can differ such that one design need not fit all stock sizes.

Keywords: market design, exchange trading systems, transparency, opacity, decimalization

JEL Classification: G10, G15, G2

Suggested Citation

Swan, Peter Lawrence and Westerholm, P. Joakim, Market Architecture and Global Exchange Efficiency: One Design Need not Fit all Stock Sizes (December 15, 2006). Available at SSRN: https://ssrn.com/abstract=971846 or http://dx.doi.org/10.2139/ssrn.971846

Peter Lawrence Swan (Contact Author)

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
Australia
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/peterswan

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

P. Joakim Westerholm

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

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