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The quality of price formation at market openings and closings: Evidence from the Nasdaq stock market

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  • Pagano, Michael S.
  • Peng, Lin
  • Schwartz, Robert A.

Abstract

We assess the quality of opening and closing prices for Nasdaq stocks by examining the effect that opening and closing call auctions (introduced in 2004) have had on price formation. Our use of measurement intervals of one minute or less sharpens the picture of intra-day volatility accentuations: they are concentrated within the first two minutes after the open and the last minute prior to the close, with the overall pattern being stapleshaped rather than U-shaped. We find that Nasdaq's calls have reduced this volatility, reorganized order flow, and lowered volatility persistence. Opening and closing prices had previously contained appreciable transitory components which have been dampened by Nasdaq's market structure innovation

Suggested Citation

  • Pagano, Michael S. & Peng, Lin & Schwartz, Robert A., 2008. "The quality of price formation at market openings and closings: Evidence from the Nasdaq stock market," CFS Working Paper Series 2008/45, Center for Financial Studies (CFS).
  • Handle: RePEc:zbw:cfswop:200845
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    References listed on IDEAS

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    Cited by:

    1. Steven L. Heston & Robert A. Korajczyk & Ronnie Sadka, 2010. "Intraday Patterns in the Cross-section of Stock Returns," Journal of Finance, American Finance Association, vol. 65(4), pages 1369-1407, August.
    2. Andrey Kudryavtsev, 2015. "Informational Content of Open-to-Close Stock Returns," European Financial and Accounting Journal, University of Economics, Prague, vol. 2015(1).
    3. Andrey KUDRYAVTSEV, 2013. "Mechanism Of Autocorrelations Of Individual Stocks' Opening Returns," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 12, pages 37-56, June.
    4. Kandel, Eugene & Rindi, Barbara & Bosetti, Luisella, 2012. "The effect of a closing call auction on market quality and trading strategies," Journal of Financial Intermediation, Elsevier, vol. 21(1), pages 23-49.

    More about this item

    Keywords

    Opening Price; Closing Price; Price Discovery; Intra-Day Volatility; Market Microstructure; Equity Markets; Call Market; Nasdaq;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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