Yes / We study liquidity on the London Stock Exchange. We find that the average bid-ask spread declines, but that the skewness of the spread increases. These results are robust to firm size, trading volume and price level. Our findings hold when the bid-ask spread is estimated utilising high frequency data. We find that the bid-ask spread prior to earnings announcements dates is significantly higher than that of post earnings announcements, suggesting that asymmetric information has driven the increase in liquidity skewness. We also find that the effect of earnings announcements is more pronounced in the 2007 global financial crisis, consistent with the notion that extreme market downturns amplify asymmetric information. Our overall evidence also implies that increased competition and transparent trading environments limit market makers' abilities to cross-subsidize bid-ask spreads between periods of high and low levels of asymmetric information. / National Natural Science Foundation of China (No. 71571197)

The purpose of this paper is to compare the liquidity and the components of the bid-ask spread for thinly traded firms switching from a dealer market (Emerging Stock Market (ESM)) to an order driven market (Taiwan Stock Exchanges (TSE) or GreTai Securities Market (GTSM)). Firstly, we follow Christie and Huang’s (1994) method to measure the liquidity performance. Our finding shows that thinly traded firms could improve their liquidity by switching from a dealer market to an order driven market. Secondly, we apply Huang and Stoll’s (1997) and Lin et al.’s (1995) model to estimate the bid-ask spread components. Our results show that the adverse selection cost is significantly smaller on ESM than TSE or GTSM using both Huang and Stoll’s (1997) and Lin et al.’s (1995) model. The inventory holding cost is lower on ESM than TSE or GTSM estimated by Huang and Stoll’s (1997) model. However, the estimates of order processing cost and the probability of trade reversal do not produce consistent results by applying Huang and Stoll’s (1997) and Lin et al.’s (1995) model.

This thesis aims to investigate the influence of earnings news on stock liquidity and the relationship between information asymmetry cost component and Post Earnings Announcement Drift in different equity markets. The scope of this research includes 1821 firms from three leading countries in capital trading, the United States, United Kingdom, and France. The first part of empirical work, the univariate panel analysis, shows that price reaction, volume response and liquidity effect are profound during short term event window length and reduce over time when the news ceases, The second part, a multivariate regression analysis which uses Generalised Method of Movement to capture both the problems of a likely presence of endogeneity between the explanatory variables and cross-stock heterogeneity,shows that the impact of earnings announcement on stock liquidity can split in two directions. The immediate effect is the shock after the news, causing stock liquidity to decrease immediately by lifting the illiquidity function upward. After the event, from the new increased position of illiquidity function, stock liquidity improves over time due to the trading volume increases and shifts the slope of illiquidity function downward. The overall effects at a point of time will be the total impact of the two side effects. And as shown in the results, the overall impact on the US and UK markets are that stock liquidity decreases and that on Euronext Paris the stock liquidity increases. Given that in accounting there are two types of systems of which common law system includes the US, UK and others, and code law system includes France and the rest, the above results could suggest the difference between the two systems is that the information asymmetry component dominates the bid-ask spread in common law countries as in the US and UK markets while the cost of trading dominates the bid-ask spreads in code law countries such as France. Finally, it is shown that there are several determinants of the PEAD, of which stock liquidity is one. Earnings news changes the stock liquidity, and therefore stock liquidity plays a role in the market response. When earnings news is released, it initially creates a gap between the informed traders and the uninformed traders, increasing the bid ask spread. Over time, this information gap decreases, however in the meantime more information on the market increases trading volume and reduces trading cost, leading to another part of the bid ask spread decreasing or stock liquidity improving. After decomposing bid ask spread into information asymmetry cost and cost of trading components, the final part of empirical analysis shows that information asymmetry cost component provides a partial explanation for PEAD in the London Stock Exchange and Euronext Paris.

The thesis studies aspects of the cost of equity trading in the emerging stock market of Ukraine. The market is quite new (opened in 1997 but started to operate actively only in 2004) and little research on this market has been done so far. The market appears to offer lucrative investment opportunities that attract attention of both Ukrainian and foreign investors but the cost of trading Ukrainian stocks is quite high and can considerably decrease the returns to investors. The empirical part of the thesis is based on the transactions data from the main trade floor in Ukraine, PFTS, for 59 Ukrainian stocks during 2004-2006. The cost of equity trading in Ukraine is found to be quite high compared to many other stock markets, both developed and emerging. An in-depth study has shown that the medium-sized trades are the cheapest to execute, followed by large and then small trades. The reason for the pattern is seen in the price improvement suggested by brokers to the larger, more valued customers in order to keep the business with them and is in line with the findings in other literature for dealership markets (Reiss and Werner (1996), Hansch et. al (1999), and Huang and Stoll (1996)). The average cost of institutional sale trades exceeds the average cost of institutional buy trades at any market condition (falling, neutral, or rising), which is a puzzling result given that sales are often found in the literature to be more expensive in falling market, while purchases are more expensive in rising market. The efficacy of a number of measures of liquidity is studied. In line with findings for other emerging markets, it is shown that the proportion of zero daily returns (Lesmond (1999)) and the proportion of no-trading days are the most reliable liquidity measures for the Ukrainian stock market. Turnover, a measure widely applied in literature for developed stock markets, has a very small power for measuring liquidity in Ukraine. The spread components are estimated by applying three spread decomposition models most frequently referred to in literature: Stoll (1989), Glosten and Harris (1988), and Huang and Stoll (1997). The estimation results show a low importance of the asymmetric information component, which is surprising given that insider trading is considered a serious risk in Ukraine. To present the importance of incorporating the transactions costs into portfolio return analysis, a momentum trading strategy is examined. It is shown that momentum portfolio returns decrease considerably when the cost of trading is taken into account.

This dissertation consists of 3 essays that examine the impact of electronic screen trading in futures markets. The research provides empirical evidence on increasingly significant issues given the rapid global advances in technology used in securities markets. Each essay addresses the scarcity of conclusive research in order to aid researchers, regulators, exchange policy makers and systems builders as they confront issues related to electronic trading systems.

Den här uppsatsen behandlar företag som är listade på Stockholmsbörsen som gjorde omvänd split mellan 1995 och 2004. Företagen är testade för abnormal avkastning kring tillkännagivandet av den omvända spliten, samt förändringar i köp-sälj ratio, handels volym och antalet handelsdagar där ingen handel skedde i aktien. Inga abnormala avkastningar eller signifikanta förändringar i köp-sälj ration eller handelsvolymen kunde hittas. Däremot så visar förändringen i antalet handelsdagar utan handel i aktien en försämring och antalet handelsdagar minskade i de aktier som genomgått en omvänd split. Detta medför att likviditeten minskade för de företag som genomförde en omvänd split. / This paper addresses reverse splits for firms trading on the Stockholm stock exchange between 1995 and 2004. The related sample are tested for abnormal returns surrounding the announcement day of the reverse split, as well as any changes in bid-ask spread, trading volume and the number of non-trading days. No findings of abnormal returns or significant changes in either bid-ask spread or trading volume could be found, while the number of non-trading days for the whole sample increased. This may suggest that the marketability decreased for the reverse splitting firms.

As one of the oldest and most innovative financial institutions, a clearinghouse efficiently clears and settles payments for equity transactions as well as other securities. However, this paper will only be concerned with common and preferred equity securities. The purpose of a clearinghouse is to reduce counterparty risk. It acts as an intermediary between two parties, so that the risk of one party failing to honor its contractual obligation is diminished. It reduces settlement risk through netting, the process of eliminating offsetting transactions, thus decreasing the amount of cash flow. I examine the impact of the New York Stock Exchange Clearinghouse upon its establishment in May 1892. Specifically, I analyze the clearinghouse’s effect on trading costs for different equity securities, scrutinizing the effects on bid-ask spreads. I find that once a firm joined the NYSE clearinghouse, both its relative and absolute bid-ask spreads are narrowed, representing an overall reduction in spreads of 5.28 percent.

<p>Den här uppsatsen behandlar företag som är listade på Stockholmsbörsen som gjorde omvänd split mellan 1995 och 2004. Företagen är testade för abnormal avkastning kring tillkännagivandet av den omvända spliten, samt förändringar i köp-sälj ratio, handels volym och antalet handelsdagar där ingen handel skedde i aktien. Inga abnormala avkastningar eller signifikanta förändringar i köp-sälj ration eller handelsvolymen kunde hittas. Däremot så visar förändringen i antalet handelsdagar utan handel i aktien en försämring och antalet handelsdagar minskade i de aktier som genomgått en omvänd split. Detta medför att likviditeten minskade för de företag som genomförde en omvänd split.</p> / <p>This paper addresses reverse splits for firms trading on the Stockholm stock exchange between 1995 and 2004. The related sample are tested for abnormal returns surrounding the announcement day of the reverse split, as well as any changes in bid-ask spread, trading volume and the number of non-trading days. No findings of abnormal returns or significant changes in either bid-ask spread or trading volume could be found, while the number of non-trading days for the whole sample increased. This may suggest that the marketability decreased for the reverse splitting firms.</p>

We study the intraday behavior of bid-ask spreads for actively traded TAIEX option in Taiwan. A study of quality of price quotation offered by market makers is important because the market makers have the responsibilities to keep trading costs low and promote price discovery. Due to the observed wider price quotation from market makers, we find that market makers offer inefficient price quotations to fulfill their obligations under requirement of market making. Moreover, ways of quotation market makers choose, indeed, affect the price quotation of market makers. We also find foreign institutional investors (QFIIs) and market makers bear lower execution cost when they deal on TAIEX option market. Overall, despite the large trading volume and increasing liquidity in TAIEX option, our results suggest that market makers do not play an important role to the market liquidity of TAIEX option market as we thought previously. / We study the intraday behavior of bid-ask spreads for actively traded TAIEX option in Taiwan. A study of quality of price quotation offered by market makers is important because the market makers have the responsibilities to keep trading costs low and promote price discovery. Due to the observed wider price quotation from market makers, we find that market makers offer inefficient price quotations to fulfill their obligations under requirement of market making. Moreover, ways of quotation market makers choose, indeed, affect the price quotation of market makers. We also find foreign institutional investors (QFIIs) and market makers bear lower execution cost when they deal on TAIEX option market. Overall, despite the large trading volume and increasing liquidity in TAIEX option, our results suggest that market makers do not play an important role to the market liquidity of TAIEX option market as we thought previously.

Essen, Univ., Diss--Duisburg, 2008.