Degree Name

Doctor of Philosophy


School of Accounting and Finance


This thesis offers an original way to examine three specific issues in market microstructure: liquidity, price discovery and price manipulation. The purpose of this thesis is to provide empirical evidence on these issues of significance to exchange regulators in designing market structure.

This thesis is structured with an introductory chapter, a theoretical chapter, three empirical analysis chapters and a concluding chapter. Chapter 1 discusses the importance of the study, and identifies research motivation and contributions. It also provides a brief description of the structure and functions of financial markets. Chapter 2 presents a theoretical framework of the study by looking at several key areas in market microstructure theory.

Chapters 3 to 5 address three research questions relating to market structure effects on liquidity, price discovery and price manipulation, respectively. First, Chapter 3 examines the liquidity impact of market structure change from a transparent market to an anonymous market, in the trading of cross-listed stocks on both the Australian Stock Exchange (ASX) and New Zealand Stock Exchange (NZX). Results show that spreads decline, quoted depth and trading volume increase with the introduction of an anonymous market, after controlling for both stock-specific and market-wide liquidity factors. Anonymity attracts the trading of cross-listed stocks from the foreign counterparty.

Chapter 4 further examines the impact of market structure change on the price discovery process in the context of ASX and NZX. It finds compelling evidence that trader anonymity improves the price discovery process. Information share improves on ASX, but deteriorates on NZX, after ASX switched to anonymous trading. On the other hand, information share increases on NZX, but decreases on ASX, after NZX adopted anonymous trading. These results also add evidence to the prior literature on the choice of anonymous market by informed traders.

Chapter 5 examines price manipulation with a specific reference to the impact of the trading mechanism in the context of the Hong Kong Stock Exchange (HKEx). It is found that the trading mechanism determines the techniques used to manipulate price. A new form of closing price manipulation, quote-based manipulation, is facilitated by the closing mechanism of HKEx. Closing price can be manipulated solely through quotes without trading, and hence without cost. The manipulator is able to inflate (deflate) closing prices through placing orders to buy (sell) small quantities of shares at prices higher (lower) than the prevailing market prices near the market close.



Unless otherwise indicated, the views expressed in this thesis are those of the author and do not necessarily represent the views of the University of Wollongong.