Abstract

In the framework of the financial and stock market literature, several economic concepts have been developed and considered including the concept of operational efficiency of stock markets. Basically, an efficient and liquid market permits investors to obtain the executed orders as fast and at reasonable prices as possible. This study provides answers for two major questions. The first question is what are the costs of liquidity which prevail in both Dubai and Abu Dhabi capital markets? Secondly, has the reduction in March 2000 in the minimum tick size in Dubai capital market led to a development in the operational efficiency of the capital market? Using data for an overall of 22 institutions which are listed on both markets and also based on a daily basis through the period from the first of October 2009 till first of August 2010, the practical investigations point out that liquidity cost in both markets is quite high. In addition, the outcomes obviously show that the decrease in the minimum tick size of the listed corporations on Dubai Capital Market have led to the preferred goal which is decreasing the cost of liquidity.

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