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The Role of Pre‐Existing Liquidity in Determining Pricing Efficiency and Liquidity Gains Following the Introduction of SETSmm
Author(s) -
ChelleySteeley Patricia L.
Publication year - 2015
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2013.12025.x
Subject(s) - market liquidity , liquidity premium , accounting liquidity , liquidity crisis , market maker , business , monetary economics , liquidity risk , stock exchange , flash trading , value (mathematics) , financial economics , economics , dark liquidity , stock market , high frequency trading , finance , paleontology , horse , machine learning , computer science , biology
In this paper we examine the impact that the new trading system SETSmm had on market quality measures such as firm value, liquidity and pricing efficiency. This system was introduced for mid‐cap securities on the London Stock Exchange in 2003. We show that there is a small SETSmm return premium associated with the announcement that securities are to migrate to the new trading system. We find that migration to SETSmm also improves liquidity and pricing efficiency and these changes are related to the return premium. We also find that these gains are stronger for firms with high pre SETSmm liquidity and weaker for firms with low SETSmm liquidity .