Pre-close Transparency and Price Efficiency at Market Closing: Evidence from the Taiwan Stock Exchange

This paper examines the impact of increased pre-close transparency on the effectiveness of stock closing call. On January 1, 2003, the Taiwan Stock Exchange increases pre-close transparency by disclosing the best five bid and ask prices and related unexecuted orders before market closing. At the same time, the Taiwan Stock Exchange does not disseminate any information about the limit-order book during the five-minute closing call period. This institutional change presents an opportunity to analyze how an increase in pre-close transparency affects informed trading and price efficiency near market closing. Empirical results show that an increase in pre-close transparency enhances the price efficiency of stock closing call, implying that informed traders will increase their trading during stock closing call following pre-close transparency increases.