Is the incremental transparency necessary?

Abstract

This paper examines how liquidity, price discovery and the causality between them are affected by incremental transparency on the Taiwan Stock Exchange (TSEC). We find that it has small effects on market quality, with the impact being focused on small- or medium-sized firms. We also find that the causality between liquidity and price discovery is weakened after the event. This study is a supplement to the existing literature and our results imply that if the market is already considerably transparent, then the effects of further opening up the limit-order book may be limited.