Is the Extension of Trading Hours Always Beneficial? An Artificial Agent-Based Analysis

Article

DOI: 10.1007/s10614-016-9613-0

Cite this article as:
Miwa, K. & Ueda, K. Comput Econ (2016). doi:10.1007/s10614-016-9613-0
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Abstract

The extension of trading hours to provide more trading opportunities and improve price efficiency has increasingly been discussed. However, currently, stock market trading activity during the extended-hours session is quite limited. Thus, we should examine whether the extension of trading hours is effective in creating more trading opportunities and increasing price efficiency even if there are only a few market participants during the extended session. For this study, we build an agent-based market model and analyze the effect of extending trading hours. We find that although the extension of trading hours could increase daily trading volume, price formation and trading activity could be distorted if the number of market participants during the extended-hours session is limited. Specifically, the extension could result in more concentrated trading at the open of the regular trading session, greater divergence between market prices and the fundamental value of assets, as well as higher return volatility (especially at the open).

Keywords

Extended trading hours Agent-based market model Price efficiency Return volatility Trading volume 

Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Tokio Marine Asset Management Co., LtdTokyoJapan
  2. 2.The University of TokyoTokyoJapan

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