The impact of post-trade transparency on price efficiency and price discovery

Purpose: The purpose of this paper is to examine the impact of post-trade transparency on price efficiency and price discovery. Design/methodology/approach: The authors use an exogeneous change in market transparency in the Taiwan Stock Exchange that mandates the disclosure of unexecuted orders of the five best bid and ask prices after each trade, and conduct an event study analysis. Findings: After the change, price efficiency enhances for both large and small firms, although the impact on stock prices is greater when the firm is larger. The authors also find that post-change trading reveals more private information for large firms but more public information for small firms. The findings support the view that transparency has a positive impact on market quality. Originality/value: The paper adds to a large body of literature investigating the relationship between transparency and market behavior, especially the ongoing debate about whether trading transparency positively affects price dynamics. The findings also have important policy implications for the regulators.