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The Extended Opening Session of the Futures Market and Stock Price Behavior: Evidence from the Taiwan Stock Exchange

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Author Info

  • Hsiu-Chuan Lee

    ()
    (Finance Department, Ming Chuan University, 250, Zhong-shan N. Road, Sec. 5, Taipei 111, Taiwan)

  • Cheng-Yi Chien

    ()
    (Department of Finance, Feng Chia University, 100, Wenhwa Road, Taichung 407, Taiwan)

  • Hsiang-Lan Chen

    ()
    (Department of Finance, National Kaohsiung, First University of Science and Technology, 2, Jhuoyue Road, Nanzih District, Kaohsiung 811, Taiwan)

  • Yen-Sheng Huang

    ()
    (Department of Business and Management, Ming Chi University of Technology, 84, Gungjuan Road, Taishan, Taipei 243, Taiwan)

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    Abstract

    This paper examines how the introduction of the extended opening session of the futures market affects stock price behavior around the market opening. On January 1, 2001, the Taiwan Futures Exchange (TAIFEX) extended the trading hours by opening earlier 15 minutes than the Taiwan Stock Exchange (TWSE). This change presents an opportunity to analyze how the extended opening session of futures market affects stock price behavior. Compared with the pre-extension period, the empirical results show that stock returns are less volatile and return autocorrelations are less positively correlated around the stock market opening. Moreover, overreaction for opening prices of the stock market is mitigated in the post-extension period. Finally, unexpected futures returns during the extended opening session can predict overnight stock returns. Overall, the empirical results are consistent with Foster and Viswanathan (1990) in that informed traders will trade aggressively at the market opening.

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

    Volume (Year): 12 (2009)
    Issue (Month): 03 ()
    Pages: 403-416

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    Handle: RePEc:wsi:rpbfmp:v:12:y:2009:i:03:p:403-416

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    Related research

    Keywords: Extended opening session of futures market; stock price behavior; informed traders; G14; G15; G18;

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