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Systematic Patterns Before and After Large Price Changes: Evidence from High Frequency Data from the Paris Bourse

Listed author(s):
  • Foort HAMELINK

    (Tilburg University)

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    This paper examines the intra-day behavior of asset prices shortly before and after large price changes. Whereas similar studies so far have been based on daily closing prices, I use three years of high frequency data of 120 stocks listed on the French stock exchange. Various systematic patterns, in addition to those often reported in the literature, emerge from this data. Evidence is found that prices do overreact and that a correction takes place after large price movements, especially those on the downside. The correction does not take place immediately after the large price change. Prior to this, some very significant and sometimes economically important patterns can be observed. When the bid-ask spread is taken into account, I still find some ex-post profitable trading strategies that are, however, too small in magnitude to suggest market inefficiency.

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    Paper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp6.

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    Date of creation: May 1999
    Handle: RePEc:fam:rpseri:rp6
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