The Extended Opening Session of the Futures Market and Stock Price Behavior: Evidence from the Taiwan Stock Exchange

Hsiu-Chuan Lee (), Cheng-Yi Chien (), Hsiang-Lan Chen () and Yen-Sheng Huang ()
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Hsiu-Chuan Lee: Finance Department, Ming Chuan University, 250, Zhong-shan N. Road, Sec. 5, Taipei 111, Taiwan
Cheng-Yi Chien: Department of Finance, Feng Chia University, 100, Wenhwa Road, Taichung 407, Taiwan
Hsiang-Lan Chen: Department of Finance, National Kaohsiung, First University of Science and Technology, 2, Jhuoyue Road, Nanzih District, Kaohsiung 811, Taiwan
Yen-Sheng Huang: Department of Business and Management, Ming Chi University of Technology, 84, Gungjuan Road, Taishan, Taipei 243, Taiwan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2009, vol. 12, issue 03, 403-416

Abstract: This paper examines how the introduction of the extended opening session of the futures market affects stock price behavior around the market opening. On January 1, 2001, the Taiwan Futures Exchange (TAIFEX) extended the trading hours by opening earlier 15 minutes than the Taiwan Stock Exchange (TWSE). This change presents an opportunity to analyze how the extended opening session of futures market affects stock price behavior. Compared with the pre-extension period, the empirical results show that stock returns are less volatile and return autocorrelations are less positively correlated around the stock market opening. Moreover, overreaction for opening prices of the stock market is mitigated in the post-extension period. Finally, unexpected futures returns during the extended opening session can predict overnight stock returns. Overall, the empirical results are consistent with Foster and Viswanathan (1990) in that informed traders will trade aggressively at the market opening.

Keywords: Extended opening session of futures market; stock price behavior; informed traders; G14; G15; G18 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (4)

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DOI: 10.1142/S021909150900168X

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