Price discovery with and without trading on the Tokyo Stock Exchange

This article examines price discovery with and without trading through the use of pre-opening quotes in the absence of trading and trading-day quotes in the presence of trading on the Tokyo Stock Exchange. The non-trading mechanism is found to be conducive to the price discovery process. A high weighted quoted price contribution and price bias in the pre-opening imply that, although the non-trading mechanism somewhat discourages informed trades, it still captures the market impact of both public and highly depreciable private information. In addition, there is evidence to show that preopening noise is triggered by price manipulation.