TY - JOUR
T1 - The effects of randomizing the opening time on the performance of a stock market under stress
AU - Hauser, Shmuel
AU - Kamara, Avraham
AU - Shurki, Itzik
N1 - Funding Information:
Opinions expressed in this paper do not necessarily reflect the position of the Israel Securities Authority. We thank the Editor and referees, Yakov Amihud, Batia Filo, Ronen Madar, Amir Rubin, Orly Sade, Sunil Wahal, and seminar participants at the University of Washington, the Pacific Northwest Finance Conference and the 2008 meeting of the Western Finance Association for their helpful comments. We thank Lew Thorson and Kara Ralston for their assistance. A. Kamara thanks the CFO Forum and the Global Business Center at the University of Washington for their financial support.
PY - 2012/11/1
Y1 - 2012/11/1
N2 - 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.
AB - 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.
KW - Manipulation
KW - Preopening and opening price discovery
KW - Random opening time
KW - Stock index derivatives
UR - http://www.scopus.com/inward/record.url?scp=84864755274&partnerID=8YFLogxK
U2 - 10.1016/j.finmar.2012.04.004
DO - 10.1016/j.finmar.2012.04.004
M3 - Article
AN - SCOPUS:84864755274
SN - 1386-4181
VL - 15
SP - 392
EP - 415
JO - Journal of Financial Markets
JF - Journal of Financial Markets
IS - 4
ER -