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A comparison of trading and non-trading mechanisms for price discovery

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  • Barclay, Michael J.
  • Hendershott, Terrence

Abstract

This paper compares trading and non-trading mechanisms for price discovery during the Nasdaq pre-open and examines whether prices discovered though non-trading mechanisms are less efficient or reveal less information than prices discovered through trading. As Nasdaq pre-open trading volume increased, the opening price became more efficient and price discovery shifted from the opening trade to the pre-open. Price discovery shifted from the trading day to the pre-open only for the highest-volume stocks. These results suggest that pre-open trading contributes to the efficiency of the opening price, but that a critical threshold of trading volume is required to increase the amount of information in the opening price.

Suggested Citation

  • Barclay, Michael J. & Hendershott, Terrence, 2008. "A comparison of trading and non-trading mechanisms for price discovery," Journal of Empirical Finance, Elsevier, vol. 15(5), pages 839-849, December.
    • Handle: RePEc:eee:empfin:v:15:y:2008:i:5:p:839-849
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    References listed on IDEAS

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