Transparency and quality of stock markets: essays on anonymity and information asymmetry.

Summary The market in which exchanges operate has become extremely competitive, with many mergers and acquisitions taking place. In this context, exchanges are constantly seeking to improve the quality of the market system they offer to their clients. Market microstructure is the area of finance that studies the link between market organization and quality, and two specific microstructure issues are addressed in this thesis. In the area of information asymmetry, we compare different models of price range decomposition applied to an order-driven market, and propose a recommendation as to which models are likely to provide the best results. With respect to market transparency, we first provide a detailed review of the literature, before analyzing the issue of pre-trade anonymity using two methods: an empirical analysis of the switch to anonymity on Euronext Paris in April 2001, and an experimental study. Our results conclude that anonymity has no effect on information asymmetry, efficiency and liquidity, which contradicts other results in the literature. Our empirical analysis also hypothesizes the existence of an aggregate liquidity factor, which is likely to be fundamental in studies of the evolution of liquidity in markets.