The impact of transparency on market quality for the Taiwan Stock Exchange

This paper examines the impact of increased transparency on market quality for stocks listed on the Taiwan Stock Exchange in the pre- and post-period of enhanced transparency starting from January 1, 2003. The Taiwan Stock Exchange discloses unexecuted orders of the five best bid and ask prices following the increased transparency. The empirical results indicate a significant improvement in market quality following the enhanced transparency. Both the bid-ask spreads and the standard deviation of returns decrease significantly in the post-period. Moreover, market depth increases significantly in the post-period. Finally, the results are robust when the market quality of different trading-volume groups is examined.

► We examine the impact of increased transparency on market quality. ► Increased transparency improves market quality for the Taiwan Stock Exchange. ► Increased transparency decreases the bid-ask spreads and the price volatility. ► Increased transparency enhances market depth.