Abstract
To tackle challenges from derivatives trading and illiquidity, reduce manipulation and improve price discovery, many exchanges have started opening at random times. We investigate how randomization has affected the performance of the Tel Aviv Stock Exchange at trade opening and at the expiration of stock-index derivatives. Randomization has improved price discovery and reduced excess volatility and price distortion, especially on expiration dates. Although preopening prices do not converge to full information values, post-randomization, opening prices on expiration days are at least as accurate as on other days. Spot market trading systems significantly impact the effects of derivatives on spot prices.
Original language | English |
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Pages (from-to) | 392-415 |
Number of pages | 24 |
Journal | Journal of Financial Markets |
Volume | 15 |
Issue number | 4 |
DOIs | |
State | Published - 1 Nov 2012 |
Externally published | Yes |
Keywords
- Manipulation
- Preopening and opening price discovery
- Random opening time
- Stock index derivatives
ASJC Scopus subject areas
- Finance
- Economics and Econometrics