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Dominant markets, staggered openings, and price discovery

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  • Bahram Adrangi
  • Arjun Chatrath
  • Rohan A. Christie‐David
  • Kiseop Lee

Abstract

This study examines information incorporation and price discovery in closely related markets that witness staggered openings. A theoretical model is presented. In this framework, one market, termed dominant, is the venue where most of the price discovery occurs, and the other is termed secondary. The model predicts heightened volatility and order flow in each market when it opens first compared with when it opens second. The effects are predicted to be more pronounced in the dominant market, and is linked to the process of information incorporation. Tests conducted using futures on crude oil (dominant) and gasoline (secondary), two related markets that witness staggered openings, reveal findings consistent with the model's predictions. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark

Suggested Citation

  • Bahram Adrangi & Arjun Chatrath & Rohan A. Christie‐David & Kiseop Lee, 2011. "Dominant markets, staggered openings, and price discovery," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(10), pages 915-946, October.
    • Handle: RePEc:wly:jfutmk:v:31:y:2011:i:10:p:915-946
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