Why do Pit-Hours outlive the Pit?

Sait Ozturk, Michel van der Wel () and Dick van Dijk

No 15-082/III, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We study why a majority of trades still happen during the pit hours, i.e. when the trading pit is open, even after the pit ceased to be a liquid and informative venue. We investigate the case of 30-year U.S. Treasury futures using a ten-years-long intraday data set which contains the introduction of the CME Globex platform as an example of sophistication in electronic trading. We use a structural model to estimate the time-variation in potential factors of the clustering of trading activity around the pit hours, namely price informativeness, information asymmetry and price impact of trades. We find evidence for a feedback mechanism between trading activity and these factors. Across the sample period, price informativeness during the afterhours is a consistently significant factor attracting trade activity. Information asymmetry has a negative effect on afterhours act ivity, particularly during the crisis years. The negative effect of price impact on afterhours activity ceases to be a significant factor from 2007 on, possibly due to improvements in order execution algorithms and electronic trading facilities.

Keywords: Afterhours Trading; Market microstructure; Kalman filter (search for similar items in EconPapers)
JEL-codes: C32 G14 (search for similar items in EconPapers)
Date: 2015-07-07
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20150082

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