Case Study: The Impact of Information Technology (IT) on Market Efficiency in the North American Security Markets
As discussed in the previous sections, security markets around the world are using information technology in a verity of applications, and they are computerized to different degrees. Prior to Freund and Pagano (2000), there has been little done in terms of studying the impact of using information technology on the efficiency of exchange markets. Also, there were not enough empirical studies to show whether the behaviors of share prices in the post implementation of automated trade platforms support the assumptions of the Efficient Market Hypothesis. In this regard, Freund and Panago have used the historical share prices in both …show more content…
The second assertion in this context is that eventually the use of information technology would lead to a more efficient and streamlined trading process which results in a higher liquidity and participation of investors in the exchange market because of the lower execution and information sharing costs. On the other hand, some of the critics of automation discuss that a fully automated exchange market could reduce the efficiency of markets eventually since in reality markets still need human interventions to act efficiently. They also claim that the lower cost of executing security trade transactions would attract more noise-traders to the …show more content…
Not surprisingly, they claim that overall the data supports the presence of more nonrandom behavior in the daily trades of only a few of the stocks on both exchanges (NYSE and TSE). In other words, the result of their analysis confirms that amongst a few of the stocks, there was a slight improvement in the efficiency of the trade transactions. However, further to their analysis they point out that existence of a high level of random behavior amongst the rest of the population demonstrates no change (or very insignificant change) in the efficiency of share return between the post and pre automation period. The same pattern was observed in both markets, especially in TSE. This brings us to a conclusion that still both markets were in the weak-efficient form of the market regardless of the use of automated trading
As discussed in the previous sections, security markets around the world are using information technology in a verity of applications, and they are computerized to different degrees. Prior to Freund and Pagano (2000), there has been little done in terms of studying the impact of using information technology on the efficiency of exchange markets. Also, there were not enough empirical studies to show whether the behaviors of share prices in the post implementation of automated trade platforms support the assumptions of the Efficient Market Hypothesis. In this regard, Freund and Panago have used the historical share prices in both …show more content…
The second assertion in this context is that eventually the use of information technology would lead to a more efficient and streamlined trading process which results in a higher liquidity and participation of investors in the exchange market because of the lower execution and information sharing costs. On the other hand, some of the critics of automation discuss that a fully automated exchange market could reduce the efficiency of markets eventually since in reality markets still need human interventions to act efficiently. They also claim that the lower cost of executing security trade transactions would attract more noise-traders to the …show more content…
Not surprisingly, they claim that overall the data supports the presence of more nonrandom behavior in the daily trades of only a few of the stocks on both exchanges (NYSE and TSE). In other words, the result of their analysis confirms that amongst a few of the stocks, there was a slight improvement in the efficiency of the trade transactions. However, further to their analysis they point out that existence of a high level of random behavior amongst the rest of the population demonstrates no change (or very insignificant change) in the efficiency of share return between the post and pre automation period. The same pattern was observed in both markets, especially in TSE. This brings us to a conclusion that still both markets were in the weak-efficient form of the market regardless of the use of automated trading