Order Consolidation, Price Efficiency, and Extreme Liquidity Shocks

44 Pages Posted: 12 Nov 2003

See all articles by Michael J. Barclay

Michael J. Barclay

University of Rochester - Simon School (Deceased)

Terrence Hendershott

University of California, Berkeley - Haas School of Business

Charles M. Jones

Columbia Business School

Date Written: July 31, 2006

Abstract

We show that the consolidation of orders is important for producing efficient prices, especially during times of high liquidity demand. The NYSE's centralized opening call market performs better than Nasdaq's decentralized opening process on typical trading days. The NYSE is much better than Nasdaq on witching days, when index arbitrage activity subjects S&P 500 stocks to large, predictable, and mostly informationless order flow around quarterly futures contract expirations. Nasdaq opening price efficiency improves to NYSE levels once Nasdaq initiates a consolidated opening call in November 2004, but prices on the decentralized Nasdaq remain less efficient at other times of day.

Keywords: Market structure, price discovery, price efficiency, volatility, liquidity

JEL Classification: G14

Suggested Citation

Barclay, Michael J. and Hendershott, Terrence J. and Jones, Charles M., Order Consolidation, Price Efficiency, and Extreme Liquidity Shocks (July 31, 2006). Simon School, University of Rochester, Research Paper. Available at SSRN: https://ssrn.com/abstract=467120 or http://dx.doi.org/10.2139/ssrn.467120

Michael J. Barclay

University of Rochester - Simon School (Deceased)

N/A

Terrence J. Hendershott (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Charles M. Jones

Columbia Business School ( email )

3022 Broadway
Uris Hall Rm 101
New York, NY 10027
United States
(212) 854-4109 (Phone)

HOME PAGE: http://https://www8.gsb.columbia.edu/cbs-directory/detail/cj88

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