Review of Quantitative Finance and Accounting, 9 (1997): 301–326
© 1997 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands.
The Impact of Information Diffusion on Comparisons
among Various Trading Mechanisms
Department of Finance, National Chung Cheng University, 160, San-Hsing, Chia-Yi, Taiwan, Republic of
China, TEL:(05)2720411-25 Ext. 6056, FAX:(05)2720818
VICTOR W. LIU
President, National Sun Yat-Sen University, Taiwan, R.O.C.
Department of Business Administration, National Sun Yat-Sen University, Taiwan, R.O.C.
Abstract. The information environment and investor order strategy are both important determinants when
comparing the market performance of trading mechanisms. However, less is known about what happens when
trading mechanisms are compared. In this paper, we link the information environment, trading mechanisms,
investor order strategy and market performance to form a model of the securities market. The primary goal of
this study is to examine the impact of various call markets in an agency market on liquidity, price volatility and
market efﬁciency under various information regimes. The results indicate that an optimal transaction frequency
appears at the trade-off of liquidity, volatility and market efﬁciency.
Key words: call markets, continuous markets, transaction frequency
Continuous markets have been favored by the stock exchanges in many countries. Re-
cently, however, new systems based on periodic clearing are under development.
process of planning periodic clearing procedures, the exchange has to determine transac-
tion frequencies. The impact of transaction frequency on market performance has not yet
been determined, however. Therefore, it is worthwhile to evaluate the market performance
of various transaction frequencies. The Paris stock market is probably the most notable. It
uses the call for its thinner issues, which are most of the issues on the Bourse. The stock
market in Israel has had call market trading for a long time while the market in Mexico
introduced call market trading for its new intermediate market. The Poland, Denmark,
Italy and Norway markets all use call systems. Since the Taiwan market conducts a
periodic clearing system, it is suitable to evaluate the impact of various transaction fre-
Economic development and achievement in Taiwan have had an increasing impact on
the world economy. The rapid economic growth has been nurtured by a sharp expansion
of the stock market in Taiwan. Since the end of the 1980s, the Taiwan stock market has
shown marked growth in terms of market value and daily trading volume (see Table 1).
@ats-ss11/data11/kluwer/journals/requ/v9n3art5 COMPOSED: 09/16/97 2:15 pm. PG.POS. 1 SESSION: 9