When a halt is not a halt: An analysis of off-NYSE trading during NYSE market closures

Chakrabarty, Bidisha; Corwin, Shane A.; Panayides, Marios A.

doi:10.1016/j.jfi.2011.03.001

Cited by 29 publications

(25 citation statements)

References 32 publications

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“…Considering the evaluation of information processing and price discovery during the volatility interruption, we apply the modied two-stage regression methodology of Chakrabarty, Corwin, and Panayides (2011) based on the fundamentals of Corwin and Lipson (2000). The aim of this approach is to evaluate the unique and likewise incremental contribution to price informativeness during the interruption.…”

Section: Price Discovery During Volatility Interruptionsmentioning

confidence: 99%

“…We therefore rely on the ten minute average midpoint. According to Chakrabarty et al (2011), if the pre-interruption price developments are perfectly anticipating the future reference price level, the intercept of this regression will be zero, the slope will be one, and subsequently the R-square will be one and residuals zero. In this case the market situation in the pre-interruption phase is not considered uncertain at all.…”

Section: Price Discovery During Volatility Interruptionsmentioning

confidence: 99%

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Price Discovery in European Volatility Interruptions

Zimmermann

2013

SSRN Journal

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We study a special form of securities market circuit breaker, i.e., European volatility interruptions. Instead of halt trading like traditional circuit breaker, these short-living call auctions allow for continual price discovery after price limit hits. Based upon approximately 1,800 Xetra volatility interruption events from 01/2009 to 01/2012, we empirically assess whether such auctions contribute to price uncertainty resolution and how they inuence post-auction continuous trading. We nd that volatility interruptions dissolve on average 36 percent of the pre-interruption price uncertainty. In addition, our results provide strong indications that this level of price discovery is a major determinant in shaping post-interruption market quality as subsequent continuous trading benets conditionally on the price discovery contribution of the interruption. By analyzing drivers of volatility interruption price discovery, our results give indications that in contrast to a prolongation of the call phase, foremost traders' participation does promote the auction's ability to display a price relevant for future trading.

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Section: Price Discovery During Volatility Interruptionsmentioning

confidence: 99%

Section: Price Discovery During Volatility Interruptionsmentioning

confidence: 99%

Price Discovery in European Volatility Interruptions

Zimmermann

2013

SSRN Journal

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“…Fabozzi and Ma (1988) conclude that since volatile OTC prices still follow a random walk and do not provide arbitrage opportunities, the results of their study do not support a coordination of CBs on all trading locations. Chakrabarty et al (2011) provide indications how alternative markets react in the absence of the dominant market, which is highly similar to the case of uncoordinated CBs on main venues. In their empirical study, they analyze trading halts in the form of delayed openings on the NYSE while alternative venues already offer trading possibilities.…”

Section: Coordination Of Circuit Breakersmentioning

confidence: 76%

Coordination of Circuit Breakers? Volume Migration and Volatility Spillover in Fragmented Markets

2017

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The introduction of the Markets in Financial Instruments Directive (MiFID I) in November 2007 fostered the competition between incumbent exchanges and emerging alternative venues. This increased competition resulted in a fragmented market landscape, which benefits market participants due to decreasing explicit transaction costs. However, market fragmentation is also associated with drawbacks for regulators and market participants since liquidity and price discovery are split across different trading venues.One particular issue in fragmented markets are safeguards such as circuit breakers, which aim to prevent extreme price jumps and excessive volatility. If a stock is traded on multiple venues, these circuit breakers might forfeit their effectiveness to manage excess volatility when they are not coordinated among different venues.Therefore, we provide new empirical insights concerning the discussion of circuit breaker coordination and analyze volume migration, shifts in market shares, and volatility spillovers during volatility interruptions in European securities markets. A volatility interruption is a specific type of circuit breaker that interrupts continuous trading with an unscheduled call auction. We observe that during volatility interruptions on the main market, turnover on the alternative venues almost dries out although there is no active circuit breaker on the alternative venues. Moreover, the market share of the main market increases sharply during the auction of the volatility interruption. Thus, the main market is therefore of major importance during turbulent times. By analyzing factors influencing the shift of market shares during volatility interruptions on the main market, we are able to trace back the increasing importance of the main market during these times to two different phenomena: the level of market fragmentation and the level of HFT activity.On the one hand, our results reveal that if a circuit breaker is triggered, traders either refrain from trading on the alternative venues or, if they trade, they prefer to participate in the call auction on the main market. On the other hand, we highlight that multi-market market making and arbitrage trading strategies of high-frequency traders get constrained and become more risky in the absence of the main market because an important price signal is missing and rebalancing their inventories gets too expensive.Consequently, our results provide empirical support against the hypothesis and often claimed concern that volume migrates from the main market to alternative venues during a circuit breaker on the main market. A coordination of circuit breakers among venues does not seem to be necessary because markets are implicitly coordinated due to traders' behavior. January 27, 2017 Coordination of Circuit AbstractWe study circuit breakers in a fragmented, multi-market environment and investigate whether a coordination of circuit breakers is necessary to ensure their effectiveness. In doing so, we analyze 2,337 volatility interruptions on Deutsche Boer...

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“…This method was developed by Biais et al (1999), who analyze both the slope and the root mean standard errors (RMSEs) of these unbiasedness regressions. 4 Subsequent studies that use unbiasedness regressions to analyze price discovery, such as those by Cushing and Madhavan (2000), Madhavan and Panchapagesan (2000), Corwin and Lipson (2000), and Chakrabarty et al (2011), among others, all reported the R 2 instead of the RMSE. 5 In this paper we analyze the statistical properties of the three above mentioned estimators and several variants, under varying assumptions for the price process.…”

Section: Introductionmentioning

confidence: 99%

Measuring price discovery: The variance ratio, the R2, and the weighted price contribution

Bommel¹

2011

Finance Research Letters

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When a halt is not a halt: An analysis of off-NYSE trading during NYSE market closures

Cited by 29 publications

References 32 publications

Price Discovery in European Volatility Interruptions

Price Discovery in European Volatility Interruptions

Coordination of Circuit Breakers? Volume Migration and Volatility Spillover in Fragmented Markets

Measuring price discovery: The variance ratio, the R2, and the weighted price contribution

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