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Selected Essays in Stock Market Liquidity. Innovative XLM Measure at the Frankfurt Stock Exchange: Cloudy Skies, Time of the Day and the Role of Designated Sponsors for Stock Market Liquidity

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  • Verrier, Tatjana

Abstract

This dissertation is built around three separate papers that research several aspects of stock market liquidity. All three papers use the innovative XLM (Exchange Liquidity Measure) data to measure the liquidity. The first paper entitled Does Screen Trading Weather the Weather? A Note on Cloudy Skies, Liquidity and Computerized Stock Markets tests for the presence of a weather effect on liquidity in a screen-based electronic stock market. The empirical evidence suggests that cloudy skies correspond with high natural liquidity levels and low liquidity injected by market makers. This result is consistent with findings for floor-based stock trading and with the hypothesis that market makers add less value in markets with high natural liquidity. The second paper entitled Designated Sponsors on Xetra – Is One Designated Sponsor Enough? tests for the impact of Designated Sponsors on liquidity in the electronic trading system Xetra at the Frankfurt stock exchange. The empirical results suggest that Designated Sponsors improve liquidity and that the increase in a number of Designated Sponsors improves liquidity further. The third paper entitled How Do Trading Costs Vary Across the Day? A note on the innovative XLM measure for Small Caps at the Frankfurt Stock Exchange provides empirical evidence on the intraday pattern of trading costs for German small cap stocks in the electronic trading system Xetra. The empirical evidence for the TecDAX stocks under investigation suggests a reverse-J shaped intraday profile for execution costs. Thus, trading is most expensive in the first 30 minutes after Xetra opens, and it is cheapest at the time when the NYSE starts trading. We conclude that cross-border integration of stock exchanges fosters market quality.

Suggested Citation

  • Verrier, Tatjana, 2010. "Selected Essays in Stock Market Liquidity. Innovative XLM Measure at the Frankfurt Stock Exchange: Cloudy Skies, Time of the Day and the Role of Designated Sponsors for Stock Market Liquidity," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 41600, September.
    • Handle: RePEc:zbw:esthes:41600
    Note: zugl. Dissertation, European Business School, 2010
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    References listed on IDEAS

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    1. Lee, Charles M C & Mucklow, Belinda & Ready, Mark J, 1993. "Spreads, Depths, and the Impact of Earnings Information: An Intraday Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 345-374.
    2. Alexandra Hachmeister & Dirk Schiereck, 2010. "Dancing in the dark: post-trade anonymity, liquidity and informed trading," Review of Quantitative Finance and Accounting, Springer, vol. 34(2), pages 145-177, February.
    3. William N. Goetzmann & Ning Zhu, 2005. "Rain or Shine: Where is the Weather Effect?," European Financial Management, European Financial Management Association, vol. 11(5), pages 559-578, November.
    4. Cohen, Randolph B. & Gompers, Paul A. & Vuolteenaho, Tuomo, 2002. "Who underreacts to cash-flow news? evidence from trading between individuals and institutions," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 409-462.
    5. Joshua D. Coval & Tobias J. Moskowitz, 1999. "Home Bias at Home: Local Equity Preference in Domestic Portfolios," Journal of Finance, American Finance Association, vol. 54(6), pages 2045-2073, December.
    6. Hachmeister, A. & Schiereck, D., 2010. "Dancing in the Dark: Post-trade Anonymity, Liquidity, and Informed Trading," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 34883, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
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    More about this item

    Keywords

    Liquidity; stock market; XLM; Xetra; weather; Designated sponsors; intraday; market makers;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • 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

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