New Economics Papers
on Market Microstructure
Issue of 2013‒09‒26
two papers chosen by
Thanos Verousis

  1. The Effects of Mandatory Transparency in Financial Market Design: Evidence from the Corporate Bond Market By Paul Asquith; Thom Covert; Parag Pathak
  2. La regolamentazione dello short selling: effetti sul mercato azionario italiano (Short selling ban: effects on the Italian stock market) By Lisa Mattioli; Riccardo Ferretti

  1. By: Paul Asquith; Thom Covert; Parag Pathak
    Abstract: Many financial markets have recently become subject to new regulations requiring transparency. This paper studies how mandatory transparency affects trading in the corporate bond market. In July 2002, TRACE began requiring the public dissemination of post-trade price and volume information for corporate bonds. Dissemination took place in Phases, with actively traded, investment grade bonds becoming transparent before thinly traded, high-yield bonds. Using new data and a differences-in-differences research design, we find that transparency causes a significant decrease in price dispersion for all bonds and a significant decrease in trading activity for some categories of bonds. The largest decrease in daily price standard deviation, 24.7%, and the largest decrease in trading activity, 41.3%, occurs for bonds in the final Phase, which consisted primarily of high-yield bonds. These results indicate that mandated transparency may help some investors and dealers through a decline in price dispersion, while harming others through a reduction in trading activity.
    JEL: G14 G18 L51
    Date: 2013–09
  2. By: Lisa Mattioli; Riccardo Ferretti
    Abstract: On September 2008, Consob banned the short-selling of financial stocks in the Italian equity market. We analyse the effect of these bans on liquidity, returns, volatility and market efficiency comparing a sample of 23 financial stocks with a control group. The analysis shows a reduction in liquidity for the banned stocks and no significant differences in returns, volatility and market efficiency between the two groups, testifying the inability of restrictions to achieve the purpose for which they were introduced.
    Keywords: short selling, regulation, stock market, liquidity, volatility, market efficiency
    JEL: G18 G12
    Date: 2013–08

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