The role of pre-existing liquidity in determining price efficiency and liquidity gains following the introduction of SETSmm

Patricia L. Chelley-Steeley

Research output: Contribution to journalArticle

Abstract

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.

Original languageEnglish
Pages (from-to)360-376
JournalEuropean Financial Management
Volume21
Issue number2
Early online date16 Sep 2013
DOIs
Publication statusPublished - 2015

Fingerprint

Price efficiency
Liquidity
Trading systems
Pricing efficiency
Premium
Firm value
Market quality
Announcement
London Stock Exchange

Keywords

  • liquidity
  • microstructure
  • pricing efficiency
  • trading system

Cite this

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The role of pre-existing liquidity in determining price efficiency and liquidity gains following the introduction of SETSmm. / Chelley-Steeley, Patricia L.

In: European Financial Management, Vol. 21, No. 2, 2015, p. 360-376.

Research output: Contribution to journalArticle

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