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

41 Pages Posted: 23 Apr 2021 Last revised: 2 Aug 2021

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 - Faculty of Business Administration

Date Written: May 19, 2019

Abstract

This paper explores the role of pre-opening price signals in price discovery and liquidity. NYSE Rule 48 suspends the responsibility of designated market makers for disseminating pre-opening price indications in the event of extreme market-wide volatility. Rule 48 speeds up the opening of stocks at the expense of lower liquidity. The absence of pre-opening price indications results in a decrease in liquidity during the first 30-minutes of the trading day. 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=3830914 or http://dx.doi.org/10.2139/ssrn.3830914

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 - Faculty of Business Administration ( email )

Canada

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