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Market fairness and efficiency: Evidence from the Tokyo Stock Exchange

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  • Kemme, David M.
  • McInish, Thomas H.
  • Zhang, Jiang

Abstract

In 2015 the Tokyo Stock Exchange (TSE) implemented Arrowhead Renewal improvements (ARI) that reduced latency from about one millisecond to less than 0.5 ms. Simultaneously, the ARI introduced new risk management functions to improve market fairness by reducing manipulative trading strategies. We find a dramatic improvement in market fairness as proxied by marking-the-close incidents, which declined by 61.19%. We find a much smaller improvement in market efficiency. Specifically, there was a reduction in the effective (quoted) spread of 6.45% (5.79%). The most dramatic improvement in market quality (fairness and efficiency) was for low-tick-size and high-market-capitalization stocks.

Suggested Citation

  • Kemme, David M. & McInish, Thomas H. & Zhang, Jiang, 2022. "Market fairness and efficiency: Evidence from the Tokyo Stock Exchange," Journal of Banking & Finance, Elsevier, vol. 134(C).
    • Handle: RePEc:eee:jbfina:v:134:y:2022:i:c:s0378426621002612
    DOI: 10.1016/j.jbankfin.2021.106309
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    More about this item

    Keywords

    Market fairness; Market efficiency; High-frequency trading; Liquidity; Tick size; Tokyo Stock Exchange;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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