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Forgery, market liquidity, and demat trading: Evidence from the national stock exchange in India

Author

Listed:
  • Aney, Madhav S.
  • Banerji, Sanjay

Abstract

We analyse the impact of the introduction of a new technology on the National Stock Exchange in India that allowed trading of stocks without the need to transfer paper share certificates (demat trading). We document a decrease in the bid-ask spread and an increase in trading volume following its introduction particularly for those stocks that were previously illiquid. We present evidence that suggests that the primary channel for the increase in liquidity was the elimination of the risk of being sold forged securities as the clearing system took on the risk of reimbursing buyers of forged shares at the introduction of demat trading.

Suggested Citation

  • Aney, Madhav S. & Banerji, Sanjay, 2024. "Forgery, market liquidity, and demat trading: Evidence from the national stock exchange in India," BOFIT Discussion Papers 7/2024, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:296486
    as

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    References listed on IDEAS

    as
    1. Hasbrouck, Joel, 2007. "Empirical Market Microstructure: The Institutions, Economics, and Econometrics of Securities Trading," OUP Catalogue, Oxford University Press, number 9780195301649, Decembrie.
    2. Jordan Siegel & Prithwiraj Choudhury, 2012. "A Reexamination of Tunneling and Business Groups: New Data and New Methods," The Review of Financial Studies, Society for Financial Studies, vol. 25(6), pages 1763-1798.
    3. Gopalan, Radhakrishnan & Nanda, Vikram & Seru, Amit, 2007. "Affiliated firms and financial support: Evidence from Indian business groups," Journal of Financial Economics, Elsevier, vol. 86(3), pages 759-795, December.
    4. Bessembinder, Hendrik & Kaufman, Herbert M., 1997. "A Comparison of Trade Execution Costs for NYSE and NASDAQ-Listed Stocks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(3), pages 287-310, September.
    5. Shane A. Corwin & Paul Schultz, 2012. "A Simple Way to Estimate Bid‐Ask Spreads from Daily High and Low Prices," Journal of Finance, American Finance Association, vol. 67(2), pages 719-760, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Liquidity trading; Bid-ask Spead; Frauds; Market manipulations;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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