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

Kotaro Miwa, Kazuhiro Ueda

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

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).

Original languageEnglish
Pages (from-to)595-627
Number of pages33
JournalComputational Economics
Volume50
Issue number4
DOIs
Publication statusPublished - Dec 1 2017
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance (miscellaneous)
  • Computer Science Applications

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