Market Transparency Effect on Liquidity, Volatility and Trading Cost: Empirical on Limited Order Book

• Main Authors: Ya-Chu Yang, 楊雅筑
• Other Authors: Chang-Wen Duan
• Format: Others
• Language: zh-TW
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/45792605758520769105

碩士 === 淡江大學 === 財務金融學系碩士班 === 96 === In order to elevate market transparency of the information, Taiwan Stock Exchange Corporation (TSEC) started to disclose the best five bids and asks quotations in January 2, 2003. We apply the structural model of Sandas (2001) and use the data of limit order book from TSEC. The empirical mothodology is based on GMM method and the research sample is divided into two different periods. Finally, we also use Panel Data model to observe the relationship between estimated parameter, volatility and liquidity. The empirical results represent that market order flow characterizing the distribution of market buy/sell order quantities. The estimated order processing cost is negative, but this could reflect rational behavior of orders by traders. We also find that the price impact of market orders is positive, presents adverse selection cost is positive. Furthermore, we show that the improvement of market transparency not only decreases the order submission and adverse selection costs but also reduces the level of information asymmetry. When traders submitted the order of Taiwan top 50 constituent stocks, the monitor cost of limit order book is higher. Finally, the results of empirical study on Panel Data model, we find that the individual stock liquidity impact on order submission cost is negative. Then, the market volatility impact on order submission cost is positive. However, the stock volatility impact on adverse selection cost is negative.