Pre-opening session (POS) in stock markets is a period of time prior to official
market opening which allows traders to submit buy/sell orders with or without actual
transactions. It aims at facilitating the price discovery or formation process owing to
the lack of information flow during the long overnight non-trading period. Earlier
studies such as Biais et al. (1999) on Paris Bourse (predecessor of Euronext Paris),
Comerton-Forde (1999) on the Australian Stock Exchange, and Bacidore and Lipson
(2001) on the NYSE, demonstrate that POS, in one form or another, brings about
price discovery. The resultant benefit induced other exchanges like London Stock
Exchange, Singapore Exchange, Jakarta Stock Exchange, and Nasdaq to implement
this scheme subsequently.
POS may take different forms in execution, for example, call auctions and dealer
markets. In the academic circle there is a debate over whether or not call auction is a
more effective approach than others. Comerton-Forde (1999), Bacidore and Lipson
(2001), Comerton-Forte et al. (2003), as well as Comerton-Forte and Rydge (2006a),
provide supporting evidence whilst Angel and Wu (2001), Davies (2003), and Ellul et
al. (2005), suggest the alternatives. While there is no consensus on the sort of
pre-opening mechanism, current literature affirms unanimously its positive role in
enhancing price discovery and market quality. Yet these studies overwhelmingly
reflect the findings in the US and the western markets. The number of empirical
work in this area on Asian markets is still very limited. On March 25, 2002, the
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Hong Kong Exchanges and Clearing (HKEx) introduced to its cash market a
30-mintue POS before the morning trading session. This new measure provides an
opportunity to study how POS affects the stock market in Hong Kong. HKEx is a
particularly interesting candidate due to two reasons. First, the Hong Kong stock
market has been ranked the second in Asia in terms of market capitalization for some
time. Its significance makes the study symbolic at a considerable level. Second,
the uniqueness of institutional setting of the HKEx cash market, such as the lack of a
formal closing mechanism and the order type/price/time priority for POS call auction
trading (Comerton-Forde and Rydge (2006b)), allows this study to unveil more
characteristics associated with electronic call auction scheme.
This paper employs the data of daily transaction and the 30-second interval
bid-ask prices of automatched trades of the 33 Hang Seng Index constituent stocks
executed in the HKEx cash market between January 4 and June 28, 2002. My
analysis discovers significant evidence that, subsequent to POS implementation, both
quoted and effective spreads narrow and volatility drops for the group of Hang Seng
Index constituent stocks. This phenomenon holds for the whole trading day and for
the respective morning and afternoon trading sessions. Further investigation reveals
a very strong endogeneity amongst spread, depth, and volatility. After accounting
for this behavior, the reductions in spreads are no longer significant. However, both
depth and volatility exhibit significant declines for the whole day and the morning
session.
학술대회/행사
학술대회안내
[2008년 제 4차] IMPLEMENTATION OF PRE-OPENING SESSION AND MARKET QU
작성자 : 관리자
조회수 : 859
게시일 :
2008-12-11