Pre-Opening Price Indications and Market Quality: Evidence from NYSE Rule 48

55 Pages Posted: 5 Jun 2019 Last revised: 10 Jan 2020

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Chairat Chuwonganant

Kansas State University - Department of Finance

Youngsoo Kim

University of Regina

Date Written: May 19, 2019

Abstract

NYSE Rule 48 suspends the responsibility of designated market makers for disseminating pre-opening price indications in the event of an extreme market-wide volatility. We show that Rule 48 speeds up the opening of stocks at the expense of lower liquidity. Specifically, the absence of pre-opening price indications results in decreases in various measures of liquidity during the first 30-minutes of the trading day that are statistically and economically significant. We interpret this finding as evidence that liquidity suppliers are less willing to provide liquidity in the absence of a reference point or benchmark regarding the value of a stock.

Keywords: Pre-opening price indications, NYSE, designated market maker, opening delay, liquidity, market volatility, Rule 48

JEL Classification: G01, G10, G14, G18

Suggested Citation

Chung, Kee H. and Chuwonganant, Chairat and Kim, Youngsoo, Pre-Opening Price Indications and Market Quality: Evidence from NYSE Rule 48 (May 19, 2019). Available at SSRN: https://ssrn.com/abstract=3378155 or http://dx.doi.org/10.2139/ssrn.3378155

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Chairat Chuwonganant

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

Youngsoo Kim

University of Regina ( email )

3737 Wascana Parkway
Regina, Saskatchewan S4S OA2 S4S 0A1
Canada
(306) 585-5647 (Phone)

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