TY - JOUR
T1 - Transparency in the equity market
T2 - Evidence from a natural experiment
AU - Chiou, Wan Jiun Paul
AU - Serrano, Alejandro
N1 - Publisher Copyright:
© 2023 Elsevier Inc.
PY - 2024/1
Y1 - 2024/1
N2 - Regulators promote market transparency as a way to lower transaction costs and boost liquidity. However, in theory, it can hinder trading in certain circumstances as some investors may prefer a degree of opaqueness. The existing evidence on its benefits is inconclusive and depends on the market scenarios. This study aims to shed light on the issue by examining the effects of implementing the National Market System (NMS) as an exogenous shock on post-trade transparency and transaction costs. Using 11 years of data from 2834 firms on NASDAQ, we find that the NMS improved post-trade transparency, leading to a reduction in quoted and percentage spreads. Our results provide insights for creating effective policies to maintain fairness, order, and stability in the stock market.
AB - Regulators promote market transparency as a way to lower transaction costs and boost liquidity. However, in theory, it can hinder trading in certain circumstances as some investors may prefer a degree of opaqueness. The existing evidence on its benefits is inconclusive and depends on the market scenarios. This study aims to shed light on the issue by examining the effects of implementing the National Market System (NMS) as an exogenous shock on post-trade transparency and transaction costs. Using 11 years of data from 2834 firms on NASDAQ, we find that the NMS improved post-trade transparency, leading to a reduction in quoted and percentage spreads. Our results provide insights for creating effective policies to maintain fairness, order, and stability in the stock market.
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U2 - 10.1016/j.iref.2023.08.025
DO - 10.1016/j.iref.2023.08.025
M3 - Article
AN - SCOPUS:85170415158
SN - 1059-0560
VL - 89
SP - 1348
EP - 1368
JO - International Review of Economics and Finance
JF - International Review of Economics and Finance
ER -