In a dynamic model of large traders who manage inventory risk, we show that a daily market closure coordinates liquidity. Some length of closure is welfare-improving relative to 24/7 trade since the coordination of liquidity improves allocative efficiency, which can fully offset the costs of the closure. A long closure is optimal in small markets, while large markets would benefit from extending trading hours to near 24/7. Our results are robust to allowing for information asymmetry. Our findings support recent proposals to extend trading hours of large equity exchanges and suggest that exchanges yet to consider extensions should do so.
regulatory disclosure dynamic investment price impact Market Closures allocative efficiency price impact
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