The impact of a preopening session on subsequent trading: An experimental analysis

Abstract

AbstractIn this study, we examine the influence of a preopening call market (CM) session on the subsequent continuous double auction (CDA) trading phase within a combined market structure (CMDA). We propose that the introduction of a CM phase before the CDA could potentially mitigate price volatility during the CDA by facilitating the disclosure of agents' private information through the preopening pricing phase. Our findings reveal a positive relationship between the preopening price and the prices traded during the subsequent phase, alongside a decreased deviation of prices from their fundamental value when high‐quality information is available. These results suggest that a well‐defined preopening phase has the potential to improve market efficiency.