Impact of the transition to continous trading on emerging financial market's liquidity : Case study of the West Africa Regional Exchange Market (BRVM)

After 18 years of activities and take-off difficulties due to socio-economic and political environment of the WAEMU zone, the west Africa regional exchange market (BRVM)’s authorities decided to move to continuous trading. The decision was effective on 16th september 2013. This action, beyond the upgrading of this stock exchange market to international standards, aims at improving market liquidity. Two years after its implementation, it seemed interesting to question the relevancy of this decision. In this empirical research, we are interested in evaluating the impact of the transition to continuous trading on market liquidity. Based on data collected from daily trading report and available databases, we mobilized the instrumental variables method to identify the part of the observed variation in liquidity due to the quotation mode change. This method was applied to evaluate the change in trading volume, TurnOver ratio, Martins index, Amihud ratio, Hui Heubel ratio and market impact due to quotation mode change. It appears from this research that the multiplication by 2.5 of the monthly trading volume observed after the change is not only due to the transition to continuous trading. A similar conclusion can be made for other dimensions of liquidity. In addition, we realized that the impact is not uniform from one stock to another. On the managerial level, the results of this research question the relevancy of the decision and its procedure. They open the way for a reflection on effective modalities for the establishment of a financial platform compatible to the WAMU zone development requirements. Theoretically, we contribute to financial theory debate on the link between quotation mode and the market liquidity, including the debate on the optimal organizational microstructure of financial markets.