A comparison of trading and non-trading mechanisms for price discovery |
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Authors: | Michael J Barclay Terrence Hendershott |
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Institution: | Haas School of Business, University of California, Berkeley, United States |
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Abstract: | This paper compares trading and non-trading mechanisms for price discovery during the Nasdaq pre-open and examines whether prices discovered though non-trading mechanisms are less efficient or reveal less information than prices discovered through trading. As Nasdaq pre-open trading volume increased, the opening price became more efficient and price discovery shifted from the opening trade to the pre-open. Price discovery shifted from the trading day to the pre-open only for the highest-volume stocks. These results suggest that pre-open trading contributes to the efficiency of the opening price, but that a critical threshold of trading volume is required to increase the amount of information in the opening price. |
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