Adverse selection, brokerage coverage, and trading activity on the Tokyo Stock Exchange

Research output: Journal Publications and ReviewsRGC 62 - Review of books or of software (or similar publications/items)peer-review

21 Scopus Citations
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Author(s)

  • Hee-Joon Ahn
  • Jun Cai
  • Yasushi Hamao
  • Richard Y.K. Ho

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)1483-1508
Journal / PublicationJournal of Banking and Finance
Volume29
Issue number6
Publication statusPublished - Jun 2005

Abstract

Limit-order trading mechanisms, corporate ownership structure, and incentive structures in the Japanese brokerage industry differ from those in the US in several important ways. This paper exploits these differences to examine the joint and cross-sectional determinants of adverse selection costs, brokerage coverage, and trading activity for a large sample of Japanese firms traded on the Tokyo Stock Exchange. We find that adverse selection costs are associated with firm characteristics but not with ownership characteristics, which implies that adverse selection costs are affected by inside trading rather than inside holdings. We also find that while brokerage coverage reduces adverse selection costs, higher adverse selection costs lead more brokerage firms to enter the market because of the greater profit potential. Finally, we find that causality also runs both ways between brokerage coverage and trading volume: brokerage coverage increases trading volume and trading volume increases brokerage coverage. © 2004 Elsevier B.V. All rights reserved.

Research Area(s)

  • Adverse selection cost, Brokerage coverage, Ownership structure, Trading activity

Citation Format(s)

Adverse selection, brokerage coverage, and trading activity on the Tokyo Stock Exchange. / Ahn, Hee-Joon; Cai, Jun; Hamao, Yasushi et al.
In: Journal of Banking and Finance, Vol. 29, No. 6, 06.2005, p. 1483-1508.

Research output: Journal Publications and ReviewsRGC 62 - Review of books or of software (or similar publications/items)peer-review