The Capital Markets Cooperative Research Centre (CMCRC) has released analysis showing that the US Thanksgiving holiday negatively impacts the quality of Canadian securities markets.
CMCRC CEO Professor Michael Aitken uses the Market Quality Dashboard (MQD) to demonstrate a consistent drop in trade volume in Canadian markets around US scheduled trade holidays, alongside a market-wide increase in bid-ask spreads and poorer price discovery. These effects are particularly pronounced in the smaller Canadian markets. The increase in transaction costs is likely due to the loss of US based liquidity providers.
The Canadian market is particularly prone to influence from its southern neighbor, with a sizeable portion of market participants being US-based brokers and traders. Smaller markets such as TMX Select and Omega appear to be more affected, however similar increases in bid-ask ask spreads are observed for TMX.
“With a significant drop in trade volume, and market efficiency, it is clear that US Thanksgiving has a significant impact on the Canadian market, increasing transaction costs for participants and likely providing a “free lunch” for liquidity suppliers willing to trade on this day.”
“Modern financial markets have become globally integrated and events that occur in one country can have considerable impacts,” Professor Aitken said. “Even regular, anticipated local holidays it seems can affect market quality in other countries.”
See Professor Aitken’s video on the impact of US Thanksgiving on the Canadian market at: https://www.youtube.com/watch?v=wPO9m7vbw0E&list=UUnyU9-4WAduJhlYOGTHTf3w
The MQD is a new technology developed by the CMCRC to enable market professionals, especially policy makers, to get a quick overview of important attributes of market quality and how they change in the wake of market design changes.
You can view these applications and others in a series of videos produced by CMCRC at: