Are daily market closures still needed? In a model of large traders who manage inventory risk, we show that even short market closures can significantly improve liquidity. Anticipating these closures, traders engage in aggressive trading, which concentrates and coordinates liquidity. A market structure with a daily closure improves allocative efficiency relative to a continuously open market, even though traders cannot trade during the closure itself. If traders have heterogeneous information about the asset value, trade is less aggressive on the whole, but closure still retains its substantial welfare benefits. Our findings suggest moving to a longer trading day could be beneficial, but moving to 24/7 trading would harm welfare.
regulatory disclosure dynamic investment price impact Market Closures allocative efficiency price impact