High Frequency Traders without Trading: Price Discovery and Liquidity Provision in the Pre-Opening Period

SAFE Working Paper No. 144

73 Pages Posted: 21 Sep 2016 Last revised: 23 Mar 2022

See all articles by Mario Bellia

Mario Bellia

European Union - JRC-Ispra, European Commision

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration

Marti G. Subrahmanyam

New York University (NYU) - Leonard N. Stern School of Business

Jun Uno

Waseda University

Darya Yuferova

Norwegian School of Economics (NHH) - Department of Finance

Date Written: February 2022

Abstract

High-frequency traders (HFTs) contribute significantly to price discovery in the pre-opening
period, and liquidity provision in the opening auction, on the Tokyo Stock Exchange (TSE), even though there is no trade in this period. We use a change in market design by the TSE (known as "Arrowhead") as a natural experiment in the time-series dimension of a positive shock to HFT activity. Similarly, in the cross-sectional dimension, we use the activity of HFTs during the pre-opening period. We conclude, based on these two analyses, that more efficient price discovery during the pre-opening period is associated with greater HFT activity.

Keywords: : High-Frequency Traders (HFTs), Pre-Opening, Opening Call Auction, Price Discovery, Liquidity provision

JEL Classification: G12, G14

Suggested Citation

Bellia, Mario and Pelizzon, Loriana and Subrahmanyam, Marti G. and Uno, Jun and Yuferova, Darya, High Frequency Traders without Trading: Price Discovery and Liquidity Provision in the Pre-Opening Period (February 2022). SAFE Working Paper No. 144, Available at SSRN: https://ssrn.com/abstract=2841242 or http://dx.doi.org/10.2139/ssrn.2841242

Mario Bellia

European Union - JRC-Ispra, European Commision ( email )

Via Enrico Fermi 2749, Ispra, VA
Ispra (VA), 21027
Italy

Loriana Pelizzon (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Marti G. Subrahmanyam

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Jun Uno

Waseda University ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku
Tokyo, 1698050
Japan

Darya Yuferova

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

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