Relationship between the Reduction of Opening Price Auction-process Time and Effect of Price Discovery

초록

On April 29, 2019, the KOSPI market of Korea Exchange reduced the opening price auction-process time from 1 hour (08:00-09:00+) to 30 minutes (08:30-09:00+) for the first time in more than 20 years. We examine whether this event was useful in improving price discovery in the market. Using the real-time indicative prices before and after the event, we analyze the price-discovery effect via unbiased regression analysis and the price-discovery speed with weighted price contribution (WPC). We derive the following results. First, the opening price-discovery effect after the event was at least the same as that during the second-half 30 minutes before the event, and the measure of reducing time was somewhat useful to improve the market’s operational efficiency. Second, the slope of the WPC inverse J-shaped pattern was much steeper after the event, implying that the speed of the opening price discovery improved too much and quickly so that about five minutes before opening was needed to be hastily adjusted. Third, analyses by liquidity level revealed that most were similar to those of the overall market analysis, but they were less effective in the price-discovery effect and speed of the group with the lowest liquidity (Q1).. © 2023, Korean Securities Association. All rights reserved.

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