With or without you: market quality of floor trading when screen trading closes early

With or without you: market quality of floor trading when screen trading closes early Most stock markets are characterized by a number of parallel operating trading systems which interact intensively with each other. Usually, smaller trading platforms take the leading domestic main market as a benchmark in the price discovery process and for closing open trading positions. But what happens if the smaller trading systems suddenly have to act without this benchmark platform? We examine the effects of the reduction of the daily business hours of a screen based main trading system while a parallel floor based trading system keeps on operating. We provide evidence that liquidity improves while informed trading and informational efficiency of prices decrease at the floor based trading system as a result of the no longer operating main market. While prior research on parallel trading focuses on changes due to a growing number of trading venues, we present the first evidence on market effects when the main trading platform reduces trading hours. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

With or without you: market quality of floor trading when screen trading closes early

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Publisher
Springer US
Copyright
Copyright © 2010 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-010-0164-5
Publisher site
See Article on Publisher Site

Abstract

Most stock markets are characterized by a number of parallel operating trading systems which interact intensively with each other. Usually, smaller trading platforms take the leading domestic main market as a benchmark in the price discovery process and for closing open trading positions. But what happens if the smaller trading systems suddenly have to act without this benchmark platform? We examine the effects of the reduction of the daily business hours of a screen based main trading system while a parallel floor based trading system keeps on operating. We provide evidence that liquidity improves while informed trading and informational efficiency of prices decrease at the floor based trading system as a result of the no longer operating main market. While prior research on parallel trading focuses on changes due to a growing number of trading venues, we present the first evidence on market effects when the main trading platform reduces trading hours.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jan 20, 2010

References

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