Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2015-07-07
Number: 15-082/III
Author-Name: Sait R. Ozturk
Author-Workplace-Name: Erasmus University Rotterdam, the Netherlands
Author-Name: Michel van der Wel
Author-Workplace-Name: Erasmus University Rotterdam, the Netherlands
Author-Name: Dick van Dijk
Author-Workplace-Name: Erasmus University Rotterdam, the Netherlands
Title: Why do Pit-Hours outlive the Pit?
Abstract: We study why a majority of trades still happen during the pit hours, i.e. when the trading pit is open, even after the pit ceased to be a liquid and informative venue. We investigate the case of 30-year U.S. Treasury futures using a ten-years-long intraday data set which contains the introduction of the CME Globex platform as an example of sophistication in electronic trading. We use a structural model to estimate the time-variation in potential factors of the clustering of trading activity around the pit hours, namely price informativeness, information asymmetry and price impact of trades. We find evidence for a feedback mechanism between trading activity and these factors. Across the sample period, price informativeness during the afterhours is a consistently significant factor attracting trade activity. Information asymmetry has a negative effect on afterhours act ivity, particularly during the crisis years. The negative effect of price impact on afterhours activity ceases to be a significant factor from 2007 on, possibly due to improvements in order execution algorithms and electronic trading facilities.
Classification-JEL: C32, G14
Keywords: Afterhours Trading, Market microstructure, Kalman filter
File-Url: https://papers.tinbergen.nl/15082.pdf
File-Format: application/pdf
File-Size: 1138781 bytes
Handle: RePEc:tin:wpaper:20150082