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The Impact of a Pre-Opening Session on Subsequent Trading: an Experimental Analysis

Author

Listed:
  • Caferra, Rocco
  • Morone, Andrea
  • Nuzzo, Simone

Abstract

The purpose of this paper is to examine the market structure at the opening and its influence on subsequent trading. In particular, we measure the market effciency of a pre-opening call market (CM) followed by a continuous double auction (CDA) focusing on the role of information. Aimed by Weigelt (1991), Theissen (2000) and Hinterleitner at al. (2015) we check whether the introduction of a call market leads to underreaction among agents' bids, improving market efficiency. Results evidence a positive correlation between pre-opening price and subsequent prices traded and a lower price-dividend deviation in case of high quality information.

Suggested Citation

  • Caferra, Rocco & Morone, Andrea & Nuzzo, Simone, 2019. "The Impact of a Pre-Opening Session on Subsequent Trading: an Experimental Analysis," MPRA Paper 92853, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:92853
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    References listed on IDEAS

    as
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    3. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    4. Madhavan, Ananth, 1992. "Trading Mechanisms in Securities Markets," Journal of Finance, American Finance Association, vol. 47(2), pages 607-641, June.
    5. Nuzzo, Simone & Morone, Andrea, 2017. "Asset markets in the lab: A literature review," Journal of Behavioral and Experimental Finance, Elsevier, vol. 13(C), pages 42-50.
    6. Cason, Timothy N. & Friedman, Daniel, 1996. "Price formation in double auction markets," Journal of Economic Dynamics and Control, Elsevier, vol. 20(8), pages 1307-1337, August.
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    9. Schnitzlein, Charles R, 1996. "Call and Continuous Trading Mechanisms under Asymmetric Information: An Experimental Investigation," Journal of Finance, American Finance Association, vol. 51(2), pages 613-636, June.
    10. Plott, Charles R & Sunder, Shyam, 1982. "Efficiency of Experimental Security Markets with Insider Information: An Application of Rational-Expectations Models," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 663-698, August.
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    12. Theissen, Erik, 2000. "Market structure, informational efficiency and liquidity: An experimental comparison of auction and dealer markets," Journal of Financial Markets, Elsevier, vol. 3(4), pages 333-363, November.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Experimental Asset Market; Market Efficiency; Double Auction; Clearing House; Pre-Opening;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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