High-frequency traders (HFTs) contribute significantly to price discovery in the pre-opening period, and liquidity provision in the opening auction, on the Tokyo Stock Exchange (TSE), even though there is no trade in this period. We use a change in market design by the TSE (known as \Arrowhead") as a natural experiment in the time-series dimension of a positive shock to HFT activity. Similarly, in the cross-sectional dimension, we use the activity of HFTs during the pre-opening period. We conclude, based on these two analyses, that more efficient price discovery during the pre-opening period is associated with greater HFT activity.
SAFE Working Paper No. 144
