Magueye Dia and Sébastien Pouget
How is liquidity formed in emerging financial markets? Do traders preannounce their orders to attract outside liquidity providers (a practice referred to as sunshine trading)? The…
Abstract
Purpose
How is liquidity formed in emerging financial markets? Do traders preannounce their orders to attract outside liquidity providers (a practice referred to as sunshine trading)? The purpose of this paper is to study liquidity formation of infrequently traded stocks. It also investigates the role of preopening periods in the formation of liquidity.
Design/methodology/approach
The paper focuses on the eight largest stocks traded on the West African Bourse in 2000. The dataset includes all the orders submitted to the market from January 3 to December 13, including their time of placement, limit price, and proposed quantity, and the identity of the broker‐dealers who submitted them. The paper analyzes order placement strategies as well as preopening price efficiency and broker‐dealers' profits.
Findings
The evidence is consistent with broker‐dealers engaging in sunshine trading. First, large orders are placed early during the preopening period and are not cancelled. Second, for most of the stocks in our sample, preopening prices reveal information long before trading actually occurs. Third, large volumes are traded without significant price movements. Fourth, the most active brokers' profits are lower than less significant intermediaries' ones, indicating that the former do not manipulate the market.
Practical implications
The analysis suggests that the actual liquidity on the West African Bourse is higher than what is indicated by the average state of the order book. This might increase the attractiveness of African stock markets for global portfolio managers.
Originality/value
To the best of the authors' knowledge, this paper is the first to empirically study sunshine trading as theoretically analyzed by Admati and Pfleiderer.
Details
Keywords
Marco Heimann, Sébastien Pouget, Étienne Mullet and Jean-François Bonnefon
Financial scholars have paid great attention to the performance of SRI funds relative to conventional investments (Bauer, Derwall, & Otten, 2007; Cortez, Silva, & Areal, 2009a…
Abstract
Financial scholars have paid great attention to the performance of SRI funds relative to conventional investments (Bauer, Derwall, & Otten, 2007; Cortez, Silva, & Areal, 2009a, 2009b; Derwall, 2007; Goldreyer & Diltz, 1999; Gregory & Whittaker, 2007; Hamilton, Jo, & Statman, 1993; Hoepner & Zeume, 2009; Luther & Matatko, 1994; Luther, Matatko, & Corner, 1992; Mallin, Saadouni, & Briston, 1995; Renneboog, Ter Horst, & Zhang, 2008b; Schroeder, 2007; Statman & Fisher, 2002). In parallel, empirical and experimental studies have been conducted that investigate the importance of financial performance to SRI investors, as compared to conventional investors.
William Sun, Céline Louche and Roland Pérez
Since Thomas Kuhn (1962), a historian of science who gave ‘paradigm’ its contemporary meaning, the term ‘paradigm’ has been widely used in science and social sciences to refer to…
Abstract
Since Thomas Kuhn (1962), a historian of science who gave ‘paradigm’ its contemporary meaning, the term ‘paradigm’ has been widely used in science and social sciences to refer to a theoretical framework or thought pattern in any given discipline, or broadly, a set of experiences, beliefs and values that affect individual perceptions of a reality and their subsequent reactions. A dominant paradigm is the widely held system of thought in a society at a particular period of time. For Kuhn, a dominant paradigm can be changed and replaced by a new one, which often occurs in a revolutionary manner in science. In social sciences, ‘paradigm shift’ implies the changing ways of understanding and organising a social reality.