Has stock exchange demutualization improved market quality? International evidence

Kobana Abukari () and Isaac Otchere ()
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Kobana Abukari: Laurentian University
Isaac Otchere: Carleton University

Review of Quantitative Finance and Accounting, 2020, vol. 55, issue 3, No 4, 934 pages

Abstract: Abstract We investigate the market quality effects of stock exchange demutualization and find that demutualized exchanges have achieved significant improvements in market quality following their conversion from mutual to for-profit structure. Demutualized exchanges have realized significant reductions in transaction costs in the post-demutualization period. The benefits are unevenly distributed, with those in developed countries realizing most of the benefits of demutualization. We explore the potential sources of the reductions in spreads on demutualized exchanges and find that, consistent with the predictions of the laws of demand and supply, the increased order flow, market share, and increased listings following demutualization, contribute to the falling spreads. Interestingly, we also find that demutualized exchanges that subsequently go public after demutualization experience incremental improvements in market quality. Our results are robust to different measures of market quality, different model specifications and placebo event date.

Keywords: Stock exchange; Demutualization; Market quality; Bid-ask spread (search for similar items in EconPapers)
JEL-codes: G15 G34 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11156-019-00863-y

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