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Korean J Financ Stud > Volume 46(3); 2017 > Article
Korean Journal of Financial Studies 2017;46(3):523-557.
DOI: https://doi.org/10.26845/KJFS.2017.    Published online June 30, 2017.
The Effects of the Change in the KONEX Trading Mechanism on Liquidity and Price Efficiency
Hak-Kyum Kim, Hee-Joon Ahn
코넥스시장의 거래방식 변경이 유동성 및 가격효율성에 미치는 영향
김학겸, 안희준
The Korea New Exchange (KONEX), the equity market exclusively for small- and medium-sized enterprises (SME) in Korea, switched its stock trading mechanism from a call auction to a continuous auction in June, 2014. We examine how the change in the trading mechanism on the KONEX affected liquidity and price efficiency of SME stocks traded there. Using a tick data for the 98-day windows before and after the event, we find the following results. Trading activity measured in terms of trading frequency and trading volume improved after the change. However, our various spread and price efficiency measures indicate that overall liquidity and price discovery deteriorated significantly after the event. We also find that the increase in the spread is attributable to increases in both information asymmetry and order processing costs. Our findings offer an important policy implication. Although the majority of the exchanges in the world adopt the continuous trading system, the mechanism does not necessarily help improve liquidity and price efficiency for all stocks. Instead, the optimality depends on the liquidity of individual stocks. Our analysis shows that for stocks with extremely low liquidity like those traded on the KONEX the call auction mechanism suits better than the continuous mechanism for liquidity and price efficiency.
Key Words: 코넥스시장,단일가매매,연속매매,유동성,가격효율성,Konex,Call Auction,Continuous Auction,Liquidity,Price Efficiency

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