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Is the Extension of Trading Hours Always Beneficial? An Artificial Agent-Based Analysis

Author

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  • Kotaro Miwa

    (Tokio Marine Asset Management Co., Ltd)

  • Kazuhiro Ueda

    (The University of Tokyo)

Abstract

The extension of trading hours to provide more trading opportunities and improve price efficiency has increasingly been discussed. However, currently, stock market trading activity during the extended-hours session is quite limited. Thus, we should examine whether the extension of trading hours is effective in creating more trading opportunities and increasing price efficiency even if there are only a few market participants during the extended session. For this study, we build an agent-based market model and analyze the effect of extending trading hours. We find that although the extension of trading hours could increase daily trading volume, price formation and trading activity could be distorted if the number of market participants during the extended-hours session is limited. Specifically, the extension could result in more concentrated trading at the open of the regular trading session, greater divergence between market prices and the fundamental value of assets, as well as higher return volatility (especially at the open).

Suggested Citation

  • Kotaro Miwa & Kazuhiro Ueda, 2017. "Is the Extension of Trading Hours Always Beneficial? An Artificial Agent-Based Analysis," Computational Economics, Springer;Society for Computational Economics, vol. 50(4), pages 595-627, December.
    • Handle: RePEc:kap:compec:v:50:y:2017:i:4:d:10.1007_s10614-016-9613-0
    DOI: 10.1007/s10614-016-9613-0
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    Cited by:

    1. Kotaro Miwa, 2018. "Effective extension of trading hours," Evolutionary and Institutional Economics Review, Springer, vol. 15(1), pages 139-166, June.
    2. Michael Frömmel & Eyup Kadioglu, 2023. "Impact of trading hours extensions on foreign exchange volatility: intraday evidence from the Moscow exchange," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-23, December.
    3. Miwa, Kotaro, 2023. "How quickly do investors react to analyst reports? Evidence from reports released outside trading hours," Global Finance Journal, Elsevier, vol. 57(C).
    4. Miwa, Kotaro, 2019. "Trading hours extension and intraday price behavior," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 572-585.

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