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A Bias in Closing Prices: The Case of the When-Issued Pricing Anomaly

  • Brooks, Raymond M.
  • Chiou, Shur-Nuaan
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    Financial studies examining stock price behavior have principally relied on end-of-day data. This paper illustrates a bias in closing prices by reexamining the when-issue pricing anomaly with intraday data. With intraday data, major portions of the pricing anomaly can be explained by: a nonsynchronous matching of trades; a difference in the settlement procedures (labeled time value of money in Choi and Strong (1983)); a mismatching of market purchases with market sales (first proposed by Lamoureux and Wansley (1989)); and a higher frequency of market purchases relative to market sales. In addition, the small remaining portion of the anomaly cannot be arbitraged. The remaining premium is attributed to a lower level of limit order competition and an order imbalance in the when-issued shares.

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    File URL: http://journals.cambridge.org/abstract_S0022109000000314
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    Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

    Volume (Year): 30 (1995)
    Issue (Month): 03 (September)
    Pages: 441-454

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    Handle: RePEc:cup:jfinqa:v:30:y:1995:i:03:p:441-454_00
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