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Trading Mechanisms and Stock Returns: An Empirical Investigation
Abstract
This paper examines the effects of the mechanism by which securities are traded on their price behavior. We compare the behavior of open‐to‐open and close‐to‐close returns on NYSE stocks, given the differences in execution methods applied in the opening and closing transactions. Opening returns are found to exhibit greater dispersion, greater deviations from normality and a more negative and significant autocorrelation pattern than closing returns. We study the effects of the bid‐ask spread and the price‐adjustment process on the estimated return variances and covariances and discuss the associated biases. We conclude that the trading mechanism has a significant effect on stock price behavior.
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Citations
Cited by
Asset pricing and the bid-ask spread
Amihud, Y., & Mendelson, H. (1986) · Journal of Financial Economics · doi:10.1016/0304-405x(86)90065-6 · Cited by 5,090
Self-citationDifferences of Opinion Make a Horse Race
Harris, M., & Raviv, A. (1993) · Review of Financial Studies · doi:10.1093/rfs/5.3.473 · Cited by 1,643
Realized Variance and Market Microstructure Noise
Hansen, P. R., & Lunde, A. (2006) · Journal of Business & Economic Statistics · doi:10.1198/073500106000000071 · Cited by 1,160
Amihud, Y., Mendelson, H., & Pedersen, L. H. (2005) · Foundations and Trends® in Finance · doi:10.1561/0500000003 · Cited by 820
Self-citationBEN‐DAVID, I., FRANZONI, F., & MOUSSAWI, R. (2018) · The Journal of Finance · doi:10.1111/jofi.12727 · Cited by 678
Metadata
- Authors
- AMIHUD, Y., & MENDELSON, H.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 1987-07
- Volume
- 42
- Issue
- 3
- Pages
- 533-553
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W1987246815
- Cited by
- 769
- References
- 0
- FWCI
- 32.72
- Type
- journal article
- Language
- en
- Open access
- closed
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- AMIHUD, Y., & MENDELSON, H. (1987). Trading Mechanisms and Stock Returns: An Empirical Investigation. The Journal of Finance. https://doi.org/10.1111/j.1540-6261.1987.tb04567.x
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
