Market quality and structural changes in the trading system: The case of X‐Stream on the Colombian stock exchange
Academia Revista Latinoamericana de Administración
ISSN: 1012-8255
Article publication date: 3 November 2014
Abstract
Purpose
The purpose of this paper is to study the effect of X‐Stream, the new trading platform of the Colombian Stock Exchange since February 2009, on the market quality.
Design/methodology/approach
The authors test the effect of X‐Stream on market quality variables, such as liquidity (bid‐ask spread and price impact), daily and intraday volatility and trading activity, using mean tests, panel data and conditional variance models. The authors use a proprietary database of transactions and orders from the exchange.
Findings
The evidence suggests that X‐Stream improved the liquidity and trading activity and reduced the volatility of the overall market, especially of the most liquid stocks.
Practical implications
These results support the investment on more sophisticated trading systems in emerging markets.
Originality/value
Contributing to the literature on market quality, this paper provides novel evidence of the effect of reforms on market design, trading rules and operational capabilities on a small and low‐liquidity emerging stock market.
Resumen
Se investiga el efecto de la plataforma de transacción de acciones de BVC, X‐Stream, en la calidad del mercado accionario a partir de su lanzamiento en Febrero del 2009. Partiendo de una base de datos transaccional de BVC, se emplean varios modelos econométricos para medir el efecto de la nueva plataforma en las volatilidades diaria e intradiaria, la liquidez (margen proporcional de oferta y demanda e impacto en el precio) y la actividad bursátil. La evidencia demuestra que X‐Stream mejoró la liquidez y redujo la volatilidad del mercado accionario como un todo, pero especialmente en las acciones más líquidas. Esta investigación contribuye a la literatura en calidad de mercado al aportar nueva evidencia sobre el efecto de los cambios de diseño, reglas de transacción y capacidades operacionales en un mercado accionario de reducidos tamaño y liquidez. De esta manera, sirve como argumento para justificar inversiones en sistemas avanzados de transacción en mercados emergentes.
Keywords
Acknowledgements
The authors are grateful to Universidad EAFIT for funding, and to Bolsa de Valores de Colombia, the Colombian Stock Exchange, for providing data, information and encouragement for this project. The authors are also thankful to two anonymous referees for helpful comments.
Citation
Agudelo, D.A., Gutiérrez Daza, Á. and Múnera Montoya, N.J. (2014), "Market quality and structural changes in the trading system: The case of X‐Stream on the Colombian stock exchange", Academia Revista Latinoamericana de Administración, Vol. 27 No. 3, pp. 324-340. https://doi.org/10.1108/ARLA-04-2013-0033
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited