Abstract
AbstractGiven a dominant exchange, how should other exchanges set their trading hours? We examine the introduction of a night session by the Shanghai Futures Exchange, allowing trading concurrently with daytime trading at the Commodity Exchange in the United States. After developing hypotheses, results for gold and silver show: trading activity has increased; liquidity in Shanghai has risen and prices are less volatile at market opening; the price discovery share of Chinese gold futures has fallen but this is not a sign of weakening market quality; and volatility spillovers increase bidirectionally. Longer trading hours have decreased market segmentation and increased information flow.
Highlights
The concept of dominant and satellite markets was first proposed by Garbade and Silber (1979) who analyze the short‐run price behavior of an identical asset traded in two different markets
To investigate the question of optimal trading hours for newer entrant markets, we examine the introduction of night trading by the Shanghai Futures Exchange (SHFE) for gold and silver futures1 on July 5, 2013
We report the statistics for all trading, day trading, and night trading from July 2013 when night trading sessions are introduced. ***A difference‐in‐means test between the prenight, and the all postnight trading measures are significant at the 1% level
Summary
The concept of dominant and satellite markets was first proposed by Garbade and Silber (1979) who analyze the short‐run price behavior of an identical asset traded in two different markets. We posit that post the introduction of night trading at the SHFE, in Chinese markets (a) volume will be higher at night; (b) liquidity will rise; (c) perhaps counterintuitively, price discovery measures will fall; and (d) volatility spillovers will increase bidirectionally but from the United States to China. The opening of the Chinese night trading session, overlapping with the COMEX daytime trading period, should enable the SHFE markets to more quickly reflect relevant price information from the United States, leading to a higher correlation coefficient between the returns of the two markets and, a higher volume of trading in Shanghai. In period 2, the active trading sessions overlap This gives rise to a greater information transmission from the preeminent market to the newer entrant the price discovery share of the former market increases, while the latter falls: Hypothesis 2b. After the introduction of night trading, volatility spillovers will increase bidirectionally but from the United States to China
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
