Natural Experiments Methodology and Global Liquidity in Financial Markets

Abstract

In this paper, we show that the methodology used to assess the impact of a change in design on market liquidity provides results that should be interpreted with lots of prudence. Focusing on the switch to anonymity on Euronext Paris in April 2001, we show that the decrease in spread that has been documented in Paris, and that has been attributed to the introduction of the anonymity rule, also appears at the same time on the NYSE. Spreads in Paris and in New York seem to exhibit a significant relationship over time, so a "global liquidity factor" should be taken into account in natural experiment studies.