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Price Discovery without Trading: Evidence from the Nasdaq Preopening

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  • Charles Cao
  • Eric Ghysels
  • Frank Hatheway

Abstract

This paper studies Nasdaq market makers' activities during the one and one‐half hour preopening period. Price discovery during the preopening is conducted via price signaling as opposed to the auction used to open the NYSE or the continuous market used during trading. In the absence of trades, Nasdaq dealers use crossed and locked inside quotes to signal to other market makers which direction the price should move. Furthermore, we find evidence of price leadership among market makers that bears little resemblance to their IPO/SEO lead underwriter participation.

Suggested Citation

  • Charles Cao & Eric Ghysels & Frank Hatheway, 2000. "Price Discovery without Trading: Evidence from the Nasdaq Preopening," Journal of Finance, American Finance Association, vol. 55(3), pages 1339-1365, June.
    • Handle: RePEc:bla:jfinan:v:55:y:2000:i:3:p:1339-1365
    DOI: 10.1111/0022-1082.00249
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