A comparison of trading and non-trading mechanisms for price discovery

Michael J. Barclay and Terrence Hendershott

Journal of Empirical Finance, 2008, vol. 15, issue 5, pages 839-849

Abstract: This paper compares trading and non-trading mechanisms for price discovery during the Nasdaq pre-open and examines whether prices discovered though non-trading mechanisms are less efficient or reveal less information than prices discovered through trading. As Nasdaq pre-open trading volume increased, the opening price became more efficient and price discovery shifted from the opening trade to the pre-open. Price discovery shifted from the trading day to the pre-open only for the highest-volume stocks. These results suggest that pre-open trading contributes to the efficiency of the opening price, but that a critical threshold of trading volume is required to increase the amount of information in the opening price.

Keywords: Market; microstructure; Price; discovery; Price; efficiency; Trading; mechanisms; Volatility (search for similar items in EconPapers)
Date: 2008

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Persistent link: http://EconPapers.repec.org/RePEc:eee:empfin:v:15:y:2008:i:5:p:839-849

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Journal of Empirical Finance is edited by R. T. Baillie, G. Bekaert, W. Ferson, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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