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The impact of post-trade transparency on price efficiency and price discovery: Evidence from the Taiwan Stock Exchange

Chiou-Fa Lin (Department of Finance, National Formosa University, Huwei, Taiwan)
Cheng-Huei Chiao (Department of Finance, Missouri Western State University, Saint Joseph, Missouri, USA)
Bin Wang (Department of Finance, College of Business Administration, Marquette University, Milwaukee, Wisconsin, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 12 August 2019

Abstract

Purpose

The purpose of this paper is to examine the impact of post-trade transparency on price efficiency and price discovery.

Design/methodology/approach

The authors use an exogeneous change in market transparency in the Taiwan Stock Exchange that mandates the disclosure of unexecuted orders of the five best bid and ask prices after each trade, and conduct an event study analysis.

Findings

After the change, price efficiency enhances for both large and small firms, although the impact on stock prices is greater when the firm is larger. The authors also find that post-change trading reveals more private information for large firms but more public information for small firms. The findings support the view that transparency has a positive impact on market quality.

Originality/value

The paper adds to a large body of literature investigating the relationship between transparency and market behavior, especially the ongoing debate about whether trading transparency positively affects price dynamics. The findings also have important policy implications for the regulators.

Keywords

Citation

Lin, C.-F., Chiao, C.-H. and Wang, B. (2019), "The impact of post-trade transparency on price efficiency and price discovery: Evidence from the Taiwan Stock Exchange", Managerial Finance, Vol. 45 No. 8, pp. 1062-1075. https://doi.org/10.1108/MF-05-2018-0217

Publisher

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Emerald Publishing Limited

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