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The impact of lunchtime closure on market behaviour: evidence from the Sydney Futures Exchange

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  • Alex Frino
  • Roland Winn

Abstract

This paper examines the impact of lunchtime closure on market behaviour. Between May and September, 1994 the Sydney Futures Exchange trialed lunchtime trading. The trial provides a unique natural laboratory experiment for examining the impact of lunchtime closure. The analysis reported in this paper documents abnormally high bid ask spreads, price volatility and trading volume on re‐opening of the market following lunchtime closure. These results confirm that closure has an impact on trading activity, and are consistent with the effects of strategic informed trading, a loss in price discovery and/or trading associated with risk transfer. An abnormal increase in trading volume prior to lunchtime closure is also documented, providing unambiguous evidence of trading activity motivated by risk transfer. Overall these results imply that lunchtime closure disrupts trading activity and reduces market quality by imposing additional costs on market participants.

Suggested Citation

  • Alex Frino & Roland Winn, 2001. "The impact of lunchtime closure on market behaviour: evidence from the Sydney Futures Exchange," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 41(1‐2), pages 25-40, July.
    • Handle: RePEc:bla:acctfi:v:41:y:2001:i:1-2:p:25-40
    DOI: 10.1111/1467-629X.00052
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    Cited by:

    1. Ivan Indriawan & Feng Jiao & Yiuman Tse, 2019. "The impact of the US stock market opening on price discovery of government bond futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(7), pages 779-802, July.
    2. Frino, Alex & Grant, Joel & Johnstone, David, 2008. "The house money effect and local traders on the Sydney Futures Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 16(1-2), pages 8-25, January.

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