Order Consolidation, Price Efficiency, and Extreme Liquidity Shocks
- 1 March 2008
- journal article
- research article
- Published by Cambridge University Press (CUP) in Journal of Financial and Quantitative Analysis
- Vol. 43 (1) , 93-121
- https://doi.org/10.1017/s0022109000002763
Abstract
We show that the consolidation of orders is important for producing efficient prices, especially during times of high liquidity demand. The NYSE's centralized opening call market performs better than Nasdaq's decentralized opening process on typical trading days. The NYSE is much better than Nasdaq on witching days when index arbitrage activity subjects S&P 500 stocks to large, predictable, and mostly informationlessorder flow around quarterly futures contract expirations. Nasdaq opening price efficiency improves to NYSE levels once Nasdaq initiates a consolidated opening call in November 2004, but prices on the decentralized Nasdaq remain less efficient at other times of day.Keywords
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