BOFIT Seminar - Sanjay Banerji (University of Nottingham) - Forgery, market liquidity, and demat trading: Evidence from the National Stock Exchange in India

Co-author: Madhav S. Aney (Singapore Management University


We analyse the impact of the introduction of a new technology on the National Stock Exchange in India that allowed trading of stocks without the need to transfer paper share certicates (demat trading). We  find that there was a sharp increase in market liquidity following its introduction and this was greatest for those stocks that were previously illiquid. We present evidence that suggests that the primary channel for the increase in liquidity was the elimination of the risk of being sold forged securities as the clearing system took on the risk of reimbursing buyers of forged shares at the introduction of demat trading.


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