Topics in financial market microstructure (Ontario)

The three chapters of this dissertation each provide a different perspective on the fundamental role of liquidity in financial markets and on the factors that contribute to it. The first chapter documents order submission strategies during the Toronto Stock Exchange (TSE) preopening session and investigates the role of the registered trader in the provision of liquidity at the market opening. The second chapter uses both kernel-based and nearest-neighbor matching estimation approaches to measure the effect of interlisting, on a US exchange, on the trading properties of a TSE-listed stock. It demonstrates that the estimates can be highly sensitive to the estimation technique used. The final chapter develops a theoretical model of strategic, information-based trading in short-lived derivatives. The model is used to explain why distant futures and options contracts typically have poor liquidity and large bid-ask spreads.