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Market quality and structural changes in the trading system

Market quality and structural changes in the trading system PurposeThe purpose of this paper is to study the effect of X‐Stream, the new trading platform of the Colombian Stock Exchange since February 2009, on the market quality.Design/methodology/approachThe authors test the effect of X‐Stream on market quality variables, such as liquidity (bid‐ask spread and price impact), daily and intraday volatility and trading activity, using mean tests, panel data and conditional variance models. The authors use a proprietary database of transactions and orders from the exchange.FindingsThe evidence suggests that X‐Stream improved the liquidity and trading activity and reduced the volatility of the overall market, especially of the most liquid stocks.Practical implicationsThese results support the investment on more sophisticated trading systems in emerging markets.Originality/valueContributing to the literature on market quality, this paper provides novel evidence of the effect of reforms on market design, trading rules and operational capabilities on a small and low‐liquidity emerging stock market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Academia Revista Latinoamericana de Administración Emerald Publishing

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1012-8255
DOI
10.1108/ARLA-04-2013-0033
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to study the effect of X‐Stream, the new trading platform of the Colombian Stock Exchange since February 2009, on the market quality.Design/methodology/approachThe authors test the effect of X‐Stream on market quality variables, such as liquidity (bid‐ask spread and price impact), daily and intraday volatility and trading activity, using mean tests, panel data and conditional variance models. The authors use a proprietary database of transactions and orders from the exchange.FindingsThe evidence suggests that X‐Stream improved the liquidity and trading activity and reduced the volatility of the overall market, especially of the most liquid stocks.Practical implicationsThese results support the investment on more sophisticated trading systems in emerging markets.Originality/valueContributing to the literature on market quality, this paper provides novel evidence of the effect of reforms on market design, trading rules and operational capabilities on a small and low‐liquidity emerging stock market.

Journal

Academia Revista Latinoamericana de AdministraciónEmerald Publishing

Published: Nov 3, 2014

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