Clearing Frequency and Volatility : evidence from the Taiwan Stock Market

The Taiwan Stock Exchange consecutively shortened the time between clearings three times from 2013 to 2015. With a series of natural experiments that are gradually unavailable worldwide, we aim to investigate the relationship between clearing frequency and stock volatility. Using intraday transaction-level data, we coin a measure of transient volatility as price change per unit time. We show that the higher clearing frequency significantly increases transient volatility, suggesting that high clearing frequency may deviate transaction prices from the theoretically optimal value. Furthermore, increases in volatility are more salient if taking into account bid-ask bounce, noise trading, and information asymmetry. Our findings also shed light on the potential impacts of the evolution of trading mechanisms on volatility