Title: Market structure, liquidity, and information based trading at the Prague Stock Exchange
Abstract: This paper investigates the relation between liquidity and information based trading and the possible impact of market microstructure changes on this relationship. A model similar in spirit to that of [Easley et al. (1996b) J. Financ. 51(3) (1996) 811–833] is used to determine how often new information occurs and how it influences the composition of orders submitted to the market. There have been several major market structure changes implemented by the Prague Stock Exchange (PSE) over the past 5 years. Thanks to its unique development path, where a given set of stocks were subjected to several changes in trading environment design, PSE trading data can be used to examine how market conditions impact the extent of informed trading and market liquidity.