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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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    File URL: https://mpra.ub.uni-muenchen.de/92853/1/MPRA_paper_92853.pdf
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    References listed on IDEAS

    as
    1. Gernot Hinterleitner & Philipp Hornung & Ulrike Leopold-Wildburger & Roland Mestel & Stefan Palan, 2012. "A Good Beginning Makes a Good Market: The Effect of Different Market Opening Structures on Market Quality," Working Paper Series, Social and Economic Sciences 2012-01, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
    2. 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.
    3. Charles Noussair & Yilong Xu, 2015. "Information mirages and financial contagion in an asset market experiment," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 42(6), pages 1029-1055, November.
    4. 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.
    5. John D. Hey & Andrea Morone, 2018. "Do Markets Drive Out Lemmings—or Vice Versa?," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 21, pages 467-489, World Scientific Publishing Co. Pte. Ltd..
    6. 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.
    7. Madhavan, Ananth, 1992. "Trading Mechanisms in Securities Markets," Journal of Finance, American Finance Association, vol. 47(2), pages 607-641, June.
    8. 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.
    9. Camerer, Colin & Weigelt, Keith, 1991. "Information Mirages in Experimental Asset Markets," The Journal of Business, University of Chicago Press, vol. 64(4), pages 463-493, October.
    10. 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.
    11. Philipp Hornung & Ulrike Leopold-Wildburger & Roland Mestel & Stefan Palan, 2015. "Insider behavior under different market structures: experimental evidence on trading patterns, manipulation, and profitability," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 23(2), pages 357-373, June.
    12. Oksana Doherty, 2018. "Informational cascades in financial markets: review and synthesis," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 10(1), pages 53-69, March.
    13. 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.
    14. John D. Hey & Andrea Morone, 2018. "Do Markets Drive Out Lemmings—or Vice Versa?," World Scientific Book Chapters,in: Experiments in Economics Decision Making and Markets, chapter 21, pages 467-489 World Scientific Publishing Co. Pte. Ltd..
    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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