Liquidity and market efficiency

• 成果类型: Article
• 署名作者: Chordia, Tarun; Roll, Richard; Subrahmanyam, Avanidhar
• 署名单位: University of California System; University of California Los Angeles; Emory University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2007.03.005
• 发表日期: 2008
• 页码: 249-268
• 关键词: liquidity; market efficiency; Order Flow

摘要

Short-horizon return predictability from order flows is an inverse indicator of market efficiency. We find that such predictability is diminished when bid-ask spreads are narrower, and has declined over time with the minimum tick size. Variance ratio tests suggest that prices were closer to random walk benchmarks in the more liquid decimal regime than in other ones. These findings indicate that liquidity stimulates arbitrage activity, which, in turn, enhances market efficiency. Further, as the tick size decreased, open-close/close-open return variance ratios increased, while return autocorrelations decreased. This suggests an increased incorporation of private information into prices during more liquid regimes. (c) 2007 Elsevier B.V. All rights reserved.