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Price Discovery without Trading: Evidence from the Nasdaq Preopening
Author(s) -
Cao Charles,
Ghysels Eric,
Hatheway Frank
Publication year - 2000
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00249
Subject(s) - price discovery , underwriting , business , initial public offering , financial economics , monetary economics , market maker , economics , finance , stock market , horse , biology , futures contract , paleontology
This paper studies Nasdaq market makers' activities during the one and one‐half hour preopening period. Price discovery during the preopening is conducted via price signaling as opposed to the auction used to open the NYSE or the continuous market used during trading. In the absence of trades, Nasdaq dealers use crossed and locked inside quotes to signal to other market makers which direction the price should move. Furthermore, we find evidence of price leadership among market makers that bears little resemblance to their IPO/SEO lead underwriter participation.