NDLI: Dynamics of market liquidity of japanese stocks: an analysis of tick-by-tick data of the tokyo stock exchange.

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Dynamics of market liquidity of japanese stocks: an analysis of tick-by-tick data of the tokyo stock exchange.

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Abstract	The purpose of this study is to study dynamic aspects of market liquidity of Japanese stocks. We use tick-by-tick data of the individual stocks listed on the first section of the Tokyo Stock Exchange (TSE) and examine three indicators of market liquidity corresponding to Kyle’s three concepts of market liquidity: tightness, depth, and resiliency. The first indicator is the bid-ask spread, the difference between the best bid and ask prices. The second is market impact, calculated as quote changes triggered by trade execution divided by the corresponding trade volume. And the third is market resiliency, the convergence speed of the bid-ask spread after trades. We conduct a cross-sectional analysis over a sample period from October 2 1995 to September 30 1996 and explore the relationship between trade frequency and the three indicators of market liquidity. The results show that trade frequency and each of the three indicators are positively correlated. We also analyse the effects of the reduction in tick size (minimal price unit) of the TSE on April 13 1998. We examine various indicators for 55 days around the reduction and find that the tick size change reduced bid-ask spread and price volatility and increased trade frequency. These results imply that the reduction in tick size improved market liquidity and efficiency.
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Subject Keyword	Market Liquidity Tokyo Stock Exchange Japanese Stock Tick-by-tick Data Trade Frequency Bid-ask Spread Sample Period Tick Size Change Market Impact Price Volatility First Section Market Resiliency Tick Size Trade Execution Quote Change Tick Size Improved Market Liquidity Individual Stock First Indicator Dynamic Aspect Ask Price Convergence Speed Cross-sectional Analysis Minimal Price Unit Corresponding Trade Volume Various Indicator
Content Type	Text

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