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Abstract
The success of any financial market depends on the ability
of the market to determine the proper price for the
assets traded in the market. This can be achieved by
matching the demand and supply in an efficient and effective
manner. An efficient market should provide enough liquidity
for the assets traded in the market. The role of the
market maker in providing liquidity is widely recognized,
but liquidity can also arise from other aspects of the
trading mechanism. Liquidity in the market depends on
many macro-economic factors like country’s financial
policy, regulatory environment, interest rates, inflation
and market micro-factors like the type of asset that
is traded, the price of the asset, the structure of
the market or the market design, the protocol that is
followed in determining the price, information about
the asset that is traded, market participants, ability
of the participants to observe the information and use
the same for making purchase and sale decisions and
finally the transaction cost involved in the process
of buying and selling.
This white paper studies the impact of some of the
important market micro-factors mentioned above on the
price of the asset traded in the market. The study involves
an understanding and analysis of how these micro factors
affect the asset price and liquidity in the market.
Author
Giridhar
To know more about Wipro in finance, go to www.wipro.com/finance
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