The Effects of Opening and Closing Procedures on the NYSE and Nasdaq

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Abstract
We study the effects of opening and closing procedures on the NYSE and Nasdaq by examining firms that moved from the Nasdaq to the NYSE and a sample of size-matched firms. We find that opening trades on the NYSE are about 20 percent less costly to execute than later comparable trades, while closing trades are slightly more costly. On the Nasdaq, both opening and closing trades are slightly more costly. The savings on the NYSE open are increasing with the size of firms. While the consolidation of orders at the NYSE opening auction appears to reduce costs, we also find that opening quotes are subject to temporary price pressures though transaction prices appear to be unaffected. At the close, NYSE trades obtain comparable executions and quotes do not appear to be distorted. However, closing trades appear to be affected by temporary liquidity pressures, particularly market-on-close orders. We find that price discovery overnight and through the first half hour of trading is comparable across both market systems. However, price discovery is more pronounced in the earlier part of the rest of the day on the NYSE. Also, opening quotes are delayed as NYSE specialists complete opening auctions, thus delaying price discovery during the first half hour of trading. Finally, we find that the official closing quote on the NYSE reflects more information than quotes prevailing at end of the day, the last third market quote, either of the last two transactions of the day, or the very last quote provided for a given stock.

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