Efficiency and price clustering in the Baltic stock exchanges: evidence from a micro-level analysis

Abstract

ABSTRACT In this article, we examine for the first time a set of securities traded in the Baltic stock exchanges for indication of price clustering. This study adds to the literature about the efficiency of the Baltic stock markets, as well as to knowledge about the clustering of financial prices. Our main conclusion is that clustering is pervasive at the firm level, with traders having a striking preference for closing prices ending in zero. Price clustering tends to increase with price level, turnover, and relative spread and to decrease with tick size. Overall, our results are consistent with the idea that the lower the cost of rounding prices and the greater the uncertainty about the proper value of the securities, the higher the propensity of prices to cluster at round numbers. Therefore, the evidence provides some support for the negotiation/resolution hypotheses.