Impact of Intraday Trading of Securities on Market Liquidity: Revisiting the Price Impact Function

Tsung-Yu Hsieh, Chih-Ling Lin and Ting-Yi Wu

Asian Economic and Financial Review, 2017, vol. 7, issue 9, 921-928

Abstract: The chronic lack of trading momentum and volume in the Taiwan stock market has been a problem for the government. Various policies and measures have been put in place to energize the domestic stock market. In 2014, the government lifted the bank on intraday trading (first on buying followed by selling on January 6, 2014, and then on selling followed by buying on June 30, 2014), in an attempt to stimulate the market. This paper seeks to examine whether intraday trading of securities is beneficial to the liquidity of the constituents of the FTSE TWSE Taiwan 50 Index and the FTSE TWSE Taiwan 100 Index by sampling data from 2013 to 2014. The research purpose is to explore the effects of (1) buying followed by selling; (2) selling followed by buying; and (3) intraday trading of securities in general on market liquidity. As the market depth indicators such as spreads used in literature are not suitable for a market geared toward trading orders (Hu and Chan, 2001) this paper contributes that the price impact function can yield some insight for research institutes into the formation of policies on intraday trading of the same securities.

Keywords: Liquidity; Price impact function; Intraday trading of the same securities; Market for trading orders; Short selling. (search for similar items in EconPapers)
Date: 2017
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