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Emergence of stylized facts during the opening of stock markets

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  • Sebastian M. Krause
  • Jonas A. Fiegen
  • Thomas Guhr

Abstract

Financial markets show a number of non-stationarities, ranging from volatility fluctuations over ever changing technical and regulatory market conditions to seasonalities. On the other hand, financial markets show various stylized facts which are remarkably stable. It is thus an intriguing question to find out how these stylized facts emerge. As a first example, we here investigate how the bid-ask-spread between best sell and best buy offer for stocks develops during the trading day. For rescaled and properly smoothed data we observe collapsing curves for many different NASDAQ stocks, with a slow power law decline of the spread during the whole trading day. This effect emerges robustly after a highly fluctuating opening period. Some so called large-tick stocks behave differently because of technical boundaries. Their spread closes to one tick shortly after the market opening. We use our findings for identifying the duration of the market opening which we find to vary largely from stock to stock.

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  • Sebastian M. Krause & Jonas A. Fiegen & Thomas Guhr, 2018. "Emergence of stylized facts during the opening of stock markets," Papers 1812.07369, arXiv.org.
    • Handle: RePEc:arx:papers:1812.07369
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    Cited by:

    1. Juan C. Henao-Londono & Sebastian M. Krause & Thomas Guhr, 2021. "Price response functions and spread impact in correlated financial markets," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 94(4), pages 1-20, April.
    2. Henao-Londono, Juan C. & Guhr, Thomas, 2022. "Foreign exchange markets: Price response and spread impact," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 589(C).

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