Document Type

Thesis - Open Access

Award Date


Degree Name

Master of Science (MS)

Department / School


First Advisor

Zhiguang Wang


With the elimination of commission fees of retail brokers, zero-commission trading became the new normal after October 2019. This study employs DTAQ data to calculate ten different market liquidity measures and finds that the implementation of zero-commission trading significantly improves market liquidity. This effect is also significant after related factors including trading volume, price volatility, market performance, opening effect, and closing effect are controlled. By explicitly modeling the simultaneity nature among market liquidity measures, trading volume, and price volatility, this study finds that there is a positive relationship between spread and price volatility. The implementation of zero-commission trading decreases price volatility which causes an indirect negative effect on spread. This study also finds that the proportion of retail orders in the stock market increased significantly after the implementation of zero-commission trading. The asymmetric model on market microstructure predicts that noise traders tend to decrease the adverse selection cost of market makers and contribute to the decrease of spread. The findings of increased retail trading and improved market liquidity in this thesis is consistent with the prediction of an asymmetric information model, implying that retail investors tend to be noise traders. This study concludes that the implementation of zero-commission trading benefits retail investors from both commission costs and liquidity costs perspectives.

Library of Congress Subject Headings

Stock exchanges.
Liquidity (Economics)
Retail trade.
Individual investors.

Number of Pages



South Dakota State University

Included in

Finance Commons



Rights Statement

In Copyright