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An analysis of the opening mechanisms of Exchange Traded Fund markets

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  • Nguyen, Vanthuan
  • Phengpis, Chanwit
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    Abstract

    We examine the opening of Exchange Traded Fund (ETF) markets in a multimarket trading environment. We find that the opening trades on the American Stock Exchange (AMEX) are the most costly. This result is consistent with the market power hypothesis which suggests that the specialists use their informational advantage about the order imbalance at the open or take advantage of the inelastic demand at the open by imposing wider spreads. We also find that the transparent opening mechanisms of the New York Stock Exchange (NYSE) and Electronic Communication Networks (ECNs) enable them to facilitate greater price discovery at the opening and to have more efficient opening prices. This result implies that the transparency effect dominates the market power effect. Further, we find that peripheral markets do not passively free ride on information revealed through the AMEX because their opening trades contribute significantly to the price discovery process.

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    Bibliographic Info

    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 49 (2009)
    Issue (Month): 2 (May)
    Pages: 562-577

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    Handle: RePEc:eee:quaeco:v:49:y:2009:i:2:p:562-577

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    Web page: http://www.elsevier.com/locate/inca/620167

    Related research

    Keywords: Exchange Traded Funds Opening Intraday patterns Price discovery Price efficiency Market transparency Fragmentation Consolidation;

    References

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