Modeling the impact of stock exchange migration on trading volumes in competing markets

Abstract

This article examines the impact of a stock exchange’s migration on its trading activity and the performance of competing markets. It examines the importance of the location of trading floors for all market participants; analyzes the relationship between the location of a trading floor and the speed of transactions in the stock market, as well as the impact of accelerating transactions on trading activity. The migration of the Euronext exchange from Paris to Basildon on September 25, 2010, was chosen as the event under study. The method of matched pairs demonstrates the possibility of rationalizing of experimental and control sample for further analysis and modeling of the impact of the relocation of the considered stock market on its and competing exchange’s performance. It is illustrated multidirectional changes in the shares of the value volume of trading and the number of transactions on the Euronext exchange itself and four competing markets. In order to model the impact of the migration of the exchange the method of “difference-in-differences” is suggested, that bases on the use of experimental and control samples and on the construction of regression equations of a special kind. Theoretical bases, advantages and disadvantages of the application of the method of “difference of differences” in the analysis of the impact of certain events on economic results were analyzed. Empirical estimates showed a different expected increase in the value of trading volume after the event on the Euronext and Chi-X Europe exchanges. It is noted that as a result of the migration, the Euronext exchange became closer to the alternative trading floors located in London. This accelerated the execution of transactions between them, and stimulated the alternative markets to become more competitive, faster and more fully reflect the changes taking place on the main Euronext Paris market.