Does proprietary day trading provide liquidity at a cost to investors?

Does proprietary day trading provide liquidity at a cost to investors?

Capitalizing on the special case of Malaysia in which proprietary day traders (PDTs) are mandated to boost liquidity and the recent availability of trading data, this paper empirically examines the liquidity effect of proprietary day trading. Using daily data spanning October 2012 to June 2018, we f...

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Main Authors: Liew, Ping Xin, Lim, Kian Ping, Goh, Kim Leng
Format: Article
Published: Elsevier 2020
Subjects:
HF Commerce
HG Finance
Online Access:http://eprints.um.edu.my/36852/
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Institution: Universiti Malaya
id my.um.eprints.36852
record_format eprints
spelling my.um.eprints.368522023-10-05T04:00:18Z http://eprints.um.edu.my/36852/ Does proprietary day trading provide liquidity at a cost to investors? Liew, Ping Xin Lim, Kian Ping Goh, Kim Leng HF Commerce HG Finance Capitalizing on the special case of Malaysia in which proprietary day traders (PDTs) are mandated to boost liquidity and the recent availability of trading data, this paper empirically examines the liquidity effect of proprietary day trading. Using daily data spanning October 2012 to June 2018, we find evidence that PDTs' trade volume is associated with higher aggregate liquidity in the Malaysian stock market, which can be attributed to the theoretical channel of intense competition among informed traders. However, such improved liquidity comes at a cost to investors, as proprietary day trading is found to be associated with higher conditional volatility and conditional skewness of closing percent quoted spreads. The former is due to the exchange-imposed immediacy for PDTs to close their open positions, whereas the latter can be attributed to the exclusive rights granted to PDTs to engage in intraday short selling. Elsevier 2020-03 Article PeerReviewed Liew, Ping Xin and Lim, Kian Ping and Goh, Kim Leng (2020) Does proprietary day trading provide liquidity at a cost to investors? International Review of Financial Analysis, 68. ISSN 1057-5219, DOI https://doi.org/10.1016/j.irfa.2020.101455 <https://doi.org/10.1016/j.irfa.2020.101455>. 10.1016/j.irfa.2020.101455
institution Universiti Malaya
building UM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Malaya
content_source UM Research Repository
url_provider http://eprints.um.edu.my/
topic HF Commerce
HG Finance
spellingShingle HF Commerce
HG Finance
Liew, Ping Xin
Lim, Kian Ping
Goh, Kim Leng
Does proprietary day trading provide liquidity at a cost to investors?
description Capitalizing on the special case of Malaysia in which proprietary day traders (PDTs) are mandated to boost liquidity and the recent availability of trading data, this paper empirically examines the liquidity effect of proprietary day trading. Using daily data spanning October 2012 to June 2018, we find evidence that PDTs' trade volume is associated with higher aggregate liquidity in the Malaysian stock market, which can be attributed to the theoretical channel of intense competition among informed traders. However, such improved liquidity comes at a cost to investors, as proprietary day trading is found to be associated with higher conditional volatility and conditional skewness of closing percent quoted spreads. The former is due to the exchange-imposed immediacy for PDTs to close their open positions, whereas the latter can be attributed to the exclusive rights granted to PDTs to engage in intraday short selling.
format Article
author Liew, Ping Xin
Lim, Kian Ping
Goh, Kim Leng
author_facet Liew, Ping Xin
Lim, Kian Ping
Goh, Kim Leng
author_sort Liew, Ping Xin
title Does proprietary day trading provide liquidity at a cost to investors?
title_short Does proprietary day trading provide liquidity at a cost to investors?
title_full Does proprietary day trading provide liquidity at a cost to investors?
title_fullStr Does proprietary day trading provide liquidity at a cost to investors?
title_full_unstemmed Does proprietary day trading provide liquidity at a cost to investors?
title_sort does proprietary day trading provide liquidity at a cost to investors?
publisher Elsevier
publishDate 2020
url http://eprints.um.edu.my/36852/
_version_ 1781704504925749248

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