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The role of pre-ppening mechanisms in fragmented markets

Author

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  • Selma Boussetta

    (GREThA - Groupe de Recherche en Economie Théorique et Appliquée - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique)

Abstract
Liquidity issues in financial markets arise because of two main factors: asymmetric information and cost of market participation. To alleviate these frictions, several exchanges start with a pre-opening period characterized by the accumulation of orders and the absence of trading. What is the role of Euronext’s pre-opening mechanism in the price discovery and liquidity formation of the exchange itself versus two other competing venues deprived of such a mechanism, namely BATS and Chi-X? EconPol expert Sophie Moinas (TSE) and her co-authors find evidence that tentative clearing prices set during the pre-opening period contribute to discover opening price; and that tentative clearing volume is positively correlated with liquidity across all three platforms.
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Suggested Citation

  • Selma Boussetta, 2018. "The role of pre-ppening mechanisms in fragmented markets," Post-Print hal-02156118, HAL.
    • Handle: RePEc:hal:journl:hal-02156118
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    References listed on IDEAS

    as
    1. Bruno Biais & Fany Declerck & Sophie Moinas, 2016. "Who supplies liquidity, how and when?," BIS Working Papers 563, Bank for International Settlements.
    2. Sébastien Pouget & Marguerite Dia, 2011. "Sunshine Trading in an African Stock Market," Post-Print halshs-00738418, HAL.
    3. Bellia, Mario & Pelizzon, Loriana & Subrahmanyam, Marti G. & Uno, Jun & Yuferova, Darya, 2017. "Low-latency trading and price discovery: Evidence from the Tokyo Stock Exchange in the pre-opening and opening periods," SAFE Working Paper Series 144, Leibniz Institute for Financial Research SAFE, revised 2017.
    4. repec:bla:jfinan:v:43:y:1988:i:3:p:617-37 is not listed on IDEAS
    5. Stefano Lovo, 2009. "Preopening and equilibrium selection," Post-Print hal-00495940, HAL.
    6. Comerton-Forde, Carole, 1999. "Do trading rules impact on market efficiency? A comparison of opening procedures on the Australian and Jakarta Stock Exchanges," Pacific-Basin Finance Journal, Elsevier, vol. 7(5), pages 495-521, December.
    7. Grossman, S.J. & Miller, M.H., 1988. "Liquidity And Market Structure," Papers 88, Princeton, Department of Economics - Financial Research Center.
    8. Michael J. Barclay, 2003. "Price Discovery and Trading After Hours," The Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1041-1073.
    9. Vives Xavier, 1995. "The Speed of Information Revelation in a Financial Market Mechanism," Journal of Economic Theory, Elsevier, vol. 67(1), pages 178-204, October.
    10. Medrano, Luis Angel & Vives, Xavier, 2001. "Strategic Behavior and Price Discovery," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 221-248, Summer.
    11. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
    12. Admati, Anat R & Pfleiderer, Paul, 1991. "Sunshine Trading and Financial Market Equilibrium," The Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 443-481.
    13. Charles Cao & Eric Ghysels & Frank Hatheway, 2000. "Price Discovery without Trading: Evidence from the Nasdaq Preopening," Journal of Finance, American Finance Association, vol. 55(3), pages 1339-1365, June.
    14. Chakraborty, Archishman & Pagano, Michael S. & Schwartz, Robert A., 2012. "Order revelation at market openings," Journal of Financial Markets, Elsevier, vol. 15(2), pages 127-150.
    15. Ellul, Andrew & Shin, Hyun Song & Tonks, Ian, 2005. "Opening and Closing the Market: Evidence from the London Stock Exchange," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(4), pages 779-801, December.
    16. Laurence Lescourret, 2017. "Cold Case File? Inventory Risk and Information Sharing during the pre†1997 NASDAQ," European Financial Management, European Financial Management Association, vol. 23(4), pages 761-806, September.
    17. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    18. Davies, Ryan J., 2003. "The Toronto Stock Exchange preopening session," Journal of Financial Markets, Elsevier, vol. 6(4), pages 491-516, August.
    19. Madhavan, Ananth & Panchapagesan, Venkatesh, 2000. "Price Discovery in Auction Markets: A Look Inside the Black Box," The Review of Financial Studies, Society for Financial Studies, vol. 13(3), pages 627-658.
    20. Bruno Biais & Pierre Hillion & Chester Spatt, 1999. "Price Discovery and Learning during the Preopening Period in the Paris Bourse," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1218-1248, December.
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    Cited by:

    1. Bellia, Mario & Pelizzon, Loriana & Subrahmanyam, Marti & Uno, Jun & Yuferova, Darya, 2017. "Coming early to the party," SAFE Working Paper Series 182, Leibniz Institute for Financial Research SAFE.
      • Mario Bellia & Loriana Pelizzon & Marti G. Subrahmanyam & Jun Uno & Darya Yuferova, 2020. "Coming early to the party," Working Papers 2020:11, Department of Economics, University of Venice "Ca' Foscari".
    2. Damien Challet & Nikita Gourianov, 2018. "Dynamical regularities of US equities opening and closing auctions," Post-Print hal-01702726, HAL.
    3. Ligot, Stephanie & Gillet, Roland & Veryzhenko, Iryna, 2021. "Intraday volatility smile: Effects of fragmentation and high frequency trading on price efficiency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    4. Damien Challet, 2018. "Strategic behaviour and indicative price diffusion in Paris Stock Exchange auctions," Papers 1807.00573, arXiv.org.

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