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Non-Fundamental Information and Market-Makers' Behavior during the NASDAQ Preopening Session

Laurence Daures Lescourret

No WP1212, ESSEC Working Papers from ESSEC Research Center, ESSEC Business School

Abstract: This paper examines whether NASDAQ dealers' preopening quotes might be related to non-fundamental information, that is, information about transient trading pressure un- related to fundamentals. Preopening quotes posted by wholesalers (dealers specialized in market-making and thus presumably more exposed to inventory risks) are strongly related to opening price reversals, a measure of transitory price pressure. Wholesalers are more likely to post preopening quotes on days characterized by large liquidity shocks or days following larger order imbalances, but not on days of strong informational asymmetry about fundamentals (days of analyst recommendation releases, earnings announcements or merger announcements). These patterns do not hold for other intermediaries, namely institutional brokers providing sell-side coverage. I also nd that daily order imbalances (another trading pressure measure) are strongly related to the preopening activity of wholesalers but not to any other groups of market-makers with more diversied banking activities. Overall, I interpret this as evidence that non-fundamental information matters during the preopening session and impacts intermediaries' preopening behavior.

Keywords: Market Microstructure; Preopen; NASDAQ; Non-fundamental Information; Price Reversals; Order Imbalances (search for similar items in EconPapers)
JEL-codes: D82 G12 G14 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2012-12
New Economics Papers: this item is included in nep-mst
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Working Paper: Non-fundamental Information and Market-makers' Behavior during the NASDAQ Preopening Session (2012) Downloads
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