Impact of Electronification of Trading on Market Efficiency, Liquidity and Volatility - A Case of India

Indian markets have witnessed the benefits of screen based trading but it is not clear if online trading has any impact on the markets. It is well documented that traditional trading practice dominates Indian market and the digital divide is strictly skewed against online trading. In this paper we have tried to investigate the impact of online trading on India's stock markets in terms of market efficiency, volatility and liquidity. We have considered historical, longitudinal and comparative event study for this purpose. In our investigation we have found that, since the introduction of online trading, efficiency and liquidity in the market have significantly improved and volatility has significantly reduced. However, it is argued that the impact on these market quality variables is because of internet itself (to a large extent) than that of internet based trading.