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Article

Evidence-Based Policy Making for Financial Markets: A
Fairness and Efficiency Framework for Assessing
Market Quality

Michael J. Aitken and Frederick H. deB. Harris
The Journal of Trading Summer 2011, 6 (3) 22-31; DOI: https://doi.org/10.3905/jot.2011.6.3.022
Michael J. Aitken
is the chief scientist at the Capital Markets Cooperative Research Centre and the chair of Capital Markets Technologies in the Australian School of Business at the University of New South Wales, Australia.
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  • For correspondence: aiken@cmcrc.com
Frederick H. deB. Harris
is the John B. McKinnon Professor of Economics and Finance in the Schools of Business at Wake Forest University in Winston-Salem, NC.
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  • For correspondence: harrisf@wfu.edu
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Abstract

We propose an outcomes-based regulatory framework for assessing security market quality that includes measurement proxies for market integrity or fairness as well as market efficiency. Across 21 leading equity markets worldwide, a price impact metric of effective spreads minus realized spreads is 10-fold greater from the most to the least efficient market. Moreover, some metrics of market integrity exhibit an even wider range. The incidence of trading ahead of price-sensitive announcements varies from 0.02 to 0.44 of 1% of total turnover, and cumulative abnormal profit from such insider trading varies from as little as $2,556 to $21 million each security year.

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The Journal of Trading: 6 (3)
The Journal of Trading
Vol. 6, Issue 3
Summer 2011
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Evidence-Based Policy Making for Financial Markets: A
Fairness and Efficiency Framework for Assessing
Market Quality
Michael J. Aitken, Frederick H. deB. Harris
The Journal of Trading Jun 2011, 6 (3) 22-31; DOI: 10.3905/jot.2011.6.3.022

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Evidence-Based Policy Making for Financial Markets: A
Fairness and Efficiency Framework for Assessing
Market Quality
Michael J. Aitken, Frederick H. deB. Harris
The Journal of Trading Jun 2011, 6 (3) 22-31; DOI: 10.3905/jot.2011.6.3.022
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  • Article
    • Abstract
    • A FRAMEWORK FOR MARKET QUALITY ANALYSIS
    • DATA ACCESS AND SOFTWARE INFRASTRUCTURE
    • MARKET QUALITY REPORTS
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
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  • PDF (Subscribers Only)

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