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Trading and Returns under Periodic Market Closures

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Author Info
Harrison Hong (Graduate School of Business, Stanford University,)
Jiang Wang (Sloan School of Management, Massachusetts Institute of Technology, and NBER)
Abstract

This paper studies how market closures affect investors' trading policies and the resulting return-generating process. It shows that closures generate rich patterns of time variation in trading and returns, including those consistent with empirical findings: (1) U-shaped patterns in the mean and volatility of returns over trading periods, (2) higher trading activity around the close and open, (3) more volatile open-to-open returns than close-to-close returns, (4) higher returns over trading periods than over nontrading periods, (5) more volatile returns over trading periods than over nontrading periods. It also shows that closures can make prices more informative about future payoffs. Copyright The American Finance Association 2000.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 55 (2000)
Issue (Month): 1 (02)
Pages: 297-354
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Handle: RePEc:bla:jfinan:v:55:y:2000:i:1:p:297-354

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  1. Michele Manna & Philipp Hartmann & Andres Manzanares, 2001. "The microstructure of the Euro money market," Working Paper Series 080, European Central Bank. [Downloadable!]
    Other versions:
  2. A. Christian Silva & Ju-Yi J. Yen, 2008. "Stochastic resonance and the trade arrival rate of stocks," Quantitative Finance Papers 0807.0925, arXiv.org. [Downloadable!]
  3. Anna Obizhaeva & Jiang Wang, 2005. "Optimal Trading Strategy and Supply/Demand Dynamics," NBER Working Papers 11444, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. R. Spence Hilton & Alessandro Prati & Leonardo Bartolini, 2006. "Money Market Integration," IMF Working Papers 06/207, International Monetary Fund. [Downloadable!]
    Other versions:
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