文档介绍：Should Securities Markets be Transparent?
Ananth Madhavan*
David Porter**
and
Daniel Weaver†
September 3, 1999
* Marshall School of Business, University of Southern California, Los Angeles, CA 90089,
Tel: (213)-740-6519; E-mail: ******@
** College of Business and Economics, University of Wisconsin, Whitewater, WI 53190, Tel:
(414)-472-1880; E-mail: ******@
† Zicklin School of Business, Baruch College, 17 Lexington Avenue, New York, NY
10010, Tel: (212)-802-6363; E-mail: daniel_******@
We thank Steve Foerster, Larry Harris, Andrew Karolyi, Albert Murphy, and Venkatesh
Panchapagesan for their ments and the Toronto Stock Exchange for providing the
data used here. Any errors are entirely our own.
© Ananth Madhavan, David Porter, and Daniel Weaver, 1999
Should Securities Markets be Transparent?
Abstract
A crucial question for security markets concerns the impact on liquidity of public display of investors’
latent demands. This topic is central to on-going debates about floor versus automated trading
systems, the informational advantages of market makers, and inter-petition between
trading systems with different levels of transparency. We examinee this topic using transaction-level
data from the Toronto Stock Exchange (TSE) before and after the limit order book was publicly
disseminated on April 12, 1990. This natural experiment allows us to isolate the effects of
transparency while controlling for stock-specific factors and for the type (floor or automated) of
trading system. We show that, contrary to popular belief, transparency has detrimental effects on
liquidity. In particular, execution costs increased after the introduction of the system even when
controlling for other factors that may affect trading costs. This finding is consistent with a model
where momentum traders optimally extract available liquidity in a transparent system. We discuss
the implications of these results for