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Preopening price indications and market quality: Evidence from NYSE Rule 48

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  • Kee H. Chung
  • Chairat Chuwonganant
  • Youngsoo Kim

Abstract

In this article, we explore the role of preopening price signals in price discovery and liquidity. NYSE Rule 48 suspends the responsibility of designated market makers for disseminating preopening price indications in the event of extreme marketwide volatility. Rule 48 speeds up the opening of stocks at the expense of lower liquidity. The absence of preopening price indications results in reduced liquidity during the first 30 min of the trading day. We interpret this finding as evidence that liquidity suppliers are less willing to provide liquidity in the absence of a reference point or benchmark regarding stock value.

Suggested Citation

  • Kee H. Chung & Chairat Chuwonganant & Youngsoo Kim, 2022. "Preopening price indications and market quality: Evidence from NYSE Rule 48," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(2), pages 205-228, June.
    • Handle: RePEc:bla:jfnres:v:45:y:2022:i:2:p:205-228
    DOI: 10.1111/jfir.12272
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    References listed on IDEAS

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