Automated trade execution and trading activity: The case of the Vancouver stock exchange

Abstract

This study examines the effect of the adoption of an automated trading system for equity trading on the Vancouver Stock Exchange (VSE). We find that the VSE's automation of its order processing has a positive influence on its trading activity, with market liquidity increasing in the post-automation period. We find, however, no evidence to support the contention that automation of securities trading destabilizes the market by increasing its volatility. Our empirical results confirm the existence of a weak weekend effect as well as a significant January effect. We also find that the serial correlation structure of returns is essentially stationary compared across the pre- and post-automation periods. We conclude that automation of the VSE has increased the transparency of the market and consequently will enhance the level of investor participation and confidence in it. © 1997 Elsevier Science B.V.

Publication Title

Journal of International Financial Markets, Institutions and Money

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