Information disclosure and price manipulation during the pre-closing session: evidence from an order-driven market

Tsung-Yu Hsieh

Applied Economics, 2015, vol. 47, issue 43, 4670-4684

Abstract: On 20 February 2012, the Taiwan Stock Exchange Corporation launched an order-matching simulation mechanism for five minutes during the start of the pre-closing session, in order to increase information disclosure during this period (13:25-13:30). Pre-closing information disclosure significantly reduces both trading costs and closing-price volatility, as well as price manipulation. The decrease in price manipulation found in this work is due to pre-closing information disclosure, not the behaviour of investors shifting to an earlier time. Further, if a stock price rises or falls by more than 3.5% in the simulation in the last minute during the closing session, trading of the stock will be suspended for two minutes from 13:31 to reduce volatility. However, this trading mechanism (suspended-closing) does not seem to have achieved the intended goals of the authorities, as it has not been able to significantly reduce closing-price volatility and price manipulation.

Date: 2015
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DOI: 10.1080/00036846.2015.1051656

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