The effects of randomizing the opening time on the performance of a stock market under stress

Shmuel Hauser, Avraham Kamara, Itzik Shurki

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

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 languageEnglish
Pages (from-to)392-415
Number of pages24
JournalJournal of Financial Markets
Volume15
Issue number4
DOIs
StatePublished - 1 Nov 2012
Externally publishedYes

Keywords

  • Manipulation
  • Preopening and opening price discovery
  • Random opening time
  • Stock index derivatives

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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