Essays on market microstructure :|market transparency, liquidity, and price discovery

Abstract

This thesis consists of two different studies on market microstructure, specifically on liquidity, transparency, and informativeness of the order book as measured with its contribution to the price discovery process. In the first study, the liquidity impact of a switch to the post-trade transparency regime i.e., disclosure of broker identifiers in real-time data feeds, which was implemented by Borsa İstanbul in April 2017 is analyzed. In addition to classical spread measures frequently used in the literature, liquidity is measured with more sophisticated measures like XLM, MCI, and order book depth that incorporate all the available order book information. Results show that post-trade transparency increases liquidity for stocks other than constituents of the BIST30 Index for which the change was implemented directly. For BIST30 stocks, the liquidity effect of the gradual switch to transparency implemented in an empirical setting is limited. In the second study, the contribution of the limit order book to the price discovery process is analyzed. Information shares of different price series are estimated with three different methods. The analysis that is performed with two different samples that include 30 different stocks included in the BIST30 Index in January and February of 2016 and in May and June of 2019 show that the orders beyond best bid and ask contribute significantly to the price discovery process. It is also found out that the contribution of orders in price levels that are close to the best price level is higher than in price levels that are farther away.