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Effect of standardization of trading board lot on abnormal liquidity in Malaysian stock market

This study examines the liquidity reaction surrounding the standardization of trading board lot (STBL) event that was announced and implemented in 2003. Motivation: The STBL event called for a reduction in the trading lot size from 1000 and 200 units per lot to a uniform size of 100 units per lot. T...

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Main Authors: Ibrahim, Nor Elliany Hawa, Taufil Mohd, Kamarun Nisham, Lee, Karren Hwei Khaw
Format: Article
Language:English
Published: MFA 2019
Subjects:
HG Finance
Online Access:http://repo.uum.edu.my/27447/1/CMR%20%2027%202%202019%2089%20102.pdf
http://repo.uum.edu.my/27447/
https://www.mfa.com.my/cmr/v27_i2_a5/
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spelling my.uum.repo.274472020-09-09T03:20:46Z http://repo.uum.edu.my/27447/ Effect of standardization of trading board lot on abnormal liquidity in Malaysian stock market Ibrahim, Nor Elliany Hawa Taufil Mohd, Kamarun Nisham Lee, Karren Hwei Khaw HG Finance This study examines the liquidity reaction surrounding the standardization of trading board lot (STBL) event that was announced and implemented in 2003. Motivation: The STBL event called for a reduction in the trading lot size from 1000 and 200 units per lot to a uniform size of 100 units per lot. The event that affected 98% of Malaysian listed firms is claimed to have improved the market liquidity and increased trading activities. Hence, this study is motivated to examine the claim. Idea: Specifically, this study examines the liquidity effect surrounding the event announcement and implementation dates. We hypothesize that the STBL event has significant impact on market liquidity. Data: We have a sample of 869 firms. February 5, 2013 is taken as the event announcement date. Since the STBL was implemented in three phases, we have three implementation dates that affected different groups of firms. Method/Tools: To begin with, this study examines the liquidity effect using an event study methodology, followed by cross-sectional regression analyses. Liquidity is measured by (1) volume turnover, (2) bid-ask spread, and (3) Amihud illiquidity ratio to gauge the impact of the new policy on the market. Findings: There is a significant liquidity deterioration following the announcement of STBL due to the lack of information content. However, the implementation leads to significantly higher volume turnover in the first stage, while the bid-ask spread is significantly narrower in the second stage. In the last stage, we find significant improvement in all three liquidity measures. This is driven by an optimistic market outlook inspired by the positive liquidity effects observed in the earlier stages. Contribution: The findings confirm the significantly higher trading activities after the implementations of STBL, which further contribute to the limited literature on the minimum trading unit. The reduction of trading lot size leads to greater trading volumes. Lastly, the outcome of this study can be used as a reference for the regulators in evaluating the effectiveness of current policies or formulating future regulations. MFA 2019 Article NonPeerReviewed application/pdf en http://repo.uum.edu.my/27447/1/CMR%20%2027%202%202019%2089%20102.pdf Ibrahim, Nor Elliany Hawa and Taufil Mohd, Kamarun Nisham and Lee, Karren Hwei Khaw (2019) Effect of standardization of trading board lot on abnormal liquidity in Malaysian stock market. Capital Markets Review, 27 (2). pp. 89-102. (Unpublished) https://www.mfa.com.my/cmr/v27_i2_a5/
institution Universiti Utara Malaysia
building UUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Utara Malaysia
content_source UUM Institutional Repository
url_provider http://repo.uum.edu.my/
language English
topic HG Finance
spellingShingle HG Finance
Ibrahim, Nor Elliany Hawa
Taufil Mohd, Kamarun Nisham
Lee, Karren Hwei Khaw
Effect of standardization of trading board lot on abnormal liquidity in Malaysian stock market
description This study examines the liquidity reaction surrounding the standardization of trading board lot (STBL) event that was announced and implemented in 2003. Motivation: The STBL event called for a reduction in the trading lot size from 1000 and 200 units per lot to a uniform size of 100 units per lot. The event that affected 98% of Malaysian listed firms is claimed to have improved the market liquidity and increased trading activities. Hence, this study is motivated to examine the claim. Idea: Specifically, this study examines the liquidity effect surrounding the event announcement and implementation dates. We hypothesize that the STBL event has significant impact on market liquidity. Data: We have a sample of 869 firms. February 5, 2013 is taken as the event announcement date. Since the STBL was implemented in three phases, we have three implementation dates that affected different groups of firms. Method/Tools: To begin with, this study examines the liquidity effect using an event study methodology, followed by cross-sectional regression analyses. Liquidity is measured by (1) volume turnover, (2) bid-ask spread, and (3) Amihud illiquidity ratio to gauge the impact of the new policy on the market. Findings: There is a significant liquidity deterioration following the announcement of STBL due to the lack of information content. However, the implementation leads to significantly higher volume turnover in the first stage, while the bid-ask spread is significantly narrower in the second stage. In the last stage, we find significant improvement in all three liquidity measures. This is driven by an optimistic market outlook inspired by the positive liquidity effects observed in the earlier stages. Contribution: The findings confirm the significantly higher trading activities after the implementations of STBL, which further contribute to the limited literature on the minimum trading unit. The reduction of trading lot size leads to greater trading volumes. Lastly, the outcome of this study can be used as a reference for the regulators in evaluating the effectiveness of current policies or formulating future regulations.
format Article
author Ibrahim, Nor Elliany Hawa
Taufil Mohd, Kamarun Nisham
Lee, Karren Hwei Khaw
author_facet Ibrahim, Nor Elliany Hawa
Taufil Mohd, Kamarun Nisham
Lee, Karren Hwei Khaw
author_sort Ibrahim, Nor Elliany Hawa
title Effect of standardization of trading board lot on abnormal liquidity in Malaysian stock market
title_short Effect of standardization of trading board lot on abnormal liquidity in Malaysian stock market
title_full Effect of standardization of trading board lot on abnormal liquidity in Malaysian stock market
title_fullStr Effect of standardization of trading board lot on abnormal liquidity in Malaysian stock market
title_full_unstemmed Effect of standardization of trading board lot on abnormal liquidity in Malaysian stock market
title_sort effect of standardization of trading board lot on abnormal liquidity in malaysian stock market
publisher MFA
publishDate 2019
url http://repo.uum.edu.my/27447/1/CMR%20%2027%202%202019%2089%20102.pdf
http://repo.uum.edu.my/27447/
https://www.mfa.com.my/cmr/v27_i2_a5/
_version_ 1677783834386497536
score 13.211869

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