Liquidity and Trading Cost Segmentation in Asia Pacific Equity Markets Liquidity and Trading Cost Segmentation in Asia Pacific Equity Markets

Abstract

Abstract This paper provides a cross-country comparison of the market microstructures of ten equity markets in Asia Pacific using daily and intraday data in 2007. At the aggregrate level, below median price stocks exhibit lower liquidity performance traits and higher volatility. We also find some salient features associated with developed and emerging market segments. The latter segment is typically associated with a higher level of retail investor participation and higher turnover velocity in the below median price segment. Even so, the study finds that stocks with below median price have higher liquidity costs suggesting that retail investors are paying a price for liquidity. Intramarket liquidity differences within developed and emerging market segments can be extreme with differences between the median spreads of the highest market being almost seven times the spreads of the lowest market. JEL Classification: G14 Keywords: Asia-Pacific Exchanges; Emerging Financial Markets; Liquidity ; Market microstructure * Corresponding author's information: Thammasat Business School, 2 Prachan Rd. Bangkok 10200, Thailand. e-mail: [email protected]. We thank Siripong Paisarnkongtawee and Sukanya Prangwattananon at the Stock Exchange of Thailand for their assistance in carrying out market surveys. We thank the POSCO TJ Park Foundation, Korea for their financial support. Liquidity and Trading Cost Segmentation in Asia Pacific Equity Markets This paper provides a cross-country comparison of the market microstructures of ten equity markets in Asia Pacific using daily and intraday data in 2007. At the aggregrate level, below median price stocks exhibit lower liquidity performance traits and higher volatility. We also find some salient features associated with developed and emerging market segments. The latter segment is typically associated with a higher level of retail investor participation and higher turnover velocity in the below median price segment. Even so, the study finds that stocks with below median price have higher liquidity costs suggesting that retail investors are paying a price for liquidity. Intramarket liquidity differences within developed and emerging market segments can be extreme with differences between the median spreads of the highest market being almost seven times the spreads of the lowest market