Order Consolidation, Price Efficiency, and Extreme Liquidity ShocksCoauthor(s): Michael Barclay, Terrence Hendershott.
We show that the consolidation of orders is important for producing efficient prices, especially during times of high liquidity demand. The NYSE's centralized opening call market performs better than Nasdaq's decentralized opening process on typical trading days. The NYSE is much better than Nasdaq on witching days when index arbitrage activity subjects S&P 5(X) stocks to large, predictable, and mostly in format ionless order flow around quiirterly futures contract expirations. Nasdaq opening price efficiency improves to NYSE levels once Nasdaq initiates a consolidated opening call in November 2004, but prices on the decentralized Nasdaq remain less efficient at other times of day.
For the final, published version of this article, please see the Journal of Financial and Quantitative Analysis.
Source: Journal of Financial and Quantitative Analysis
Barclay, Michael, Terrence Hendershott, and Charles Jones. "Order Consolidation, Price Efficiency, and Extreme Liquidity Shocks." Journal of Financial and Quantitative Analysis 43, no. 1 (2008): 93-121.