The Quality of Floor and Electronic Trading Systems Directly Compared: Evidence from a Natural Experiment on the German Stock Market

Abstract

This paper contributes to the debate about the relative qualities of floor and electronic trading systems by analysing the effects of bringing forward the Xetra closing time from 8:00 pm to 5:30 pm in November 2003, while the Frankfurt floor remains open until 8:00 pm. This natural experiment provides a cleaner institutional setting than in previous studies, as it enables us to investigate trading quality for both platforms for the same stocks before and after the event. The empirical evidence suggests that primarily institutional investors trading in large stocks transfer to the floor when Xetra closes earlier. It appears that investors remain with Xetra for informed trading though.

Keywords: Informed Trading, After-hours Trading, Exchange Regulation

JEL Classification: D82, G14, G20