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Price discovery, trading costs and insider trading: Evidence
from a thin emerging market
Mohamed Derrabi* and Samir Agnaou
School Of Business Administration, Al-Akhawayn University in
Ifrane, P. O. Box 2148, Ifrane 53000, Morocco.
*Corresponding author. E-mail:
m.derrabi@aui.ma.
Tel.: 0021235862311. Fax: 0021235862060.
Accepted 14 May, 2009 |
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This research examines the impact of continuous trading
system versus fixing system on liquidity, volatility,
pricing error and order flows. Our results show that the
continuous system show better price determination than the
fixing system. This result is surprising. Indeed, temporal
consolidation and the absence of effect of noisy orders
should have led to a reverse conclusion. We suggest that in
thin market, insiders and large investors take advantage of
small investors at the opening. These later are usually
liquidity traders and therefore are more concerned about the
execution of their transactions rather the transaction
prices and thus bear higher trading costs. In opposite most
of participants in the continuous period are strategic
traders. Insiders and large investors take advantage of
multilateral trading mechanism during the opening (fixing)
period at the cost of small investors. Our analysis of the
trading costs shows that trading in thin market encompasses
high trading costs because of low market liquidity, low
trading volume, high volatility, significant pricing error
and low market capitalisation that are specific to these
markets.
Key words:
Market microstructure, market efficiency, volatility,
emerging markets. |
