Price discovery process on regular trade and cross trade markets: empirical evidence from the Jakarta Stock Exchange

Abstract

Empirical evidence indicates that unrestricted pricing of cross trades: (i) causes greater price volatility and (ii) makes the Jakarta Stock Exchange (JSX) market less efficient, less liquid, and noisier than necessary. The magnitude of price reversals in the regular trade market is very small, as is the case for the U.S. market. In contrast, the degree of price continuation in the JSX cross trade market is much more pronounced immediately after the market open. Cross trades without pricing restriction work against the fundamental philosophy of creating a fair and orderly markets for listed securities. Hence, appropriate pricing restrictions must be imposed on cross trades to prevent them from occurring at prices away from the market.