Market Microstructure in Emerging and Developed Markets

CHAPTER 20

Empirical and Experimental Research on Transparency and Disclosure

ARIE E. GOZLUKLU

Assistant Professor of Finance, University of Warwick

INTRODUCTION

Muriel Siebert, known as the first woman of finance, comments on the changing nature of trading. Siebert (2011, p. 1) points out the difficulty of keeping track of the traded volume in today's highly technological trading environment.

You used to have people who would change their jobs to be a floor trader. You had total transparency then. … If something traded and you were at that post, you saw it or you saw the tick. You don't see the tick anymore. You don't see what's going on in the markets. You don't see the dark pools and what's trading in there.

Following the financial crisis of 2007–2008, many market participants attributed the problems to the complexity of financial securities and the opaqueness of financial markets. One of the proposed cures is more transparency. Recent financial regulation in the United States and Europe also reflects this view.

Market transparency is a complex issue with several dimensions. Any policy discussion on market design includes market transparency. In broad terms, transparency refers to information available to market participants about the trading process (O'Hara 1995). One of the primary roles of markets is to aggregate information (Hayek 1945). Ideally, prices should reflect the fundamental value of the assets to guarantee fair trade. Yet, if prices fully reflected value, fewer ...