Nontrading Periods Research Articles

Does international trading of stocks decrease pricing errors? Evidence from Japan

Abstract Amihud and Mendelson (1987, J. Finance 42, 533–553; 1989, Jpn. World Econ. 1, 341–370; 1991, J. Finance 46, 1765–1789) constructed the ratio of the open-to-open return variance to the close-to-close return variance in order to measure the magnitude of pricing errors at the open and at the close. They found that the return variance at the open was greater than that of the close and concluded that this was caused by the preceding non-trading period rather than by the trading mechanism. In this paper, we provide new evidence on the Tokyo Stock Exchange (TSE). We find that the globalization of Japanese stock trading has a beneficial effect on the value discovery at the TSE open.

What causes intra-week regularities in stock returns? Some evidence from the UK

The calendar anomaly associated with negative stock returns over the weekend is investigated. It is argued that such effects may be caused by a number of institutional features. Using Datastream's daily stock returns index for the UK over the period 1980–1993, it is shown that after allowing for three institutional factors there is no residual weekend anomaly to be explained. These factors are: (i) financing discontinuities associated with the account settlement period; (ii) the relative scarcity of funds while finance is held in banks suspense and transmission accounts on Settlement Day; and (iii) firms reluctance to hold money during non-trading periods.

Trading structure and overnight information: A natural experiment from the Tel-Aviv Stock Exchange

A unique data set from the Tel-Aviv Stock Exchange (TASE) is used to study the effect of trading mechanisms on stock return volatility. The TASE represents a natural experiment which allows separation of the overnight information effect from the trading mechanism effect. The data span a time period in which the order of the trading mechanisms (a sequential continuous mechanism and a call auction) was switched. Since overnight information should impact opening prices equally across periods, this affords an unparalleled opportunity to examine the trading mechanism effect without the confounding effect of the non-trading period. This paper finds that the null, that opening variances equal closing variances, cannot be rejected for either period. Further, the tests cannot reject null that the ratio of opening to closing return variances is equal across periods. This suggests that the trading mechanisms on the TASE do not differ in their effect upon return volatility.

Tests and Properties of Variance Ratios in Microstructure Studies

The properties of variance ratio tests across trading and non-trading periods are examined using the generalized method of moments. For the case of opening and closing return variances, the joint tests indicate that the null hypothesis that the variance of opening returns equals the variance of closing returns cannot be rejected for a sample of New York Stock Exchange stocks. This example demonstrates the importance of accounting for overlapping observations and cross correlation in such frameworks. The conventional average (across assets) variance ratio test is shown to be biased against the null in small samples. Specifically, when non-zero correlations are ignored, previous tests have the wrong asymptotic size. This bias persists in other frameworks as well: although this study confirms earlier findings that the return variance during non-trading periods is significantly lower than during trading periods, test statistics that ignore correlations are shown to be inflated.

Further Evidence on Nontrading‐Period Information Release*

Abstract. Using a sample of 856 management earnings forecasts, we provide evidence that managers release larger shock‐earnings forecasts in nontrading periods. Our results do not depend on whether the magnitude of the shock is measured exogenously (unexpected accounting earnings) or endogenously (security market reaction). The timing effects are more pronounced for less‐precise (i.e., open‐interval and closed‐interval) forecasts. Also, we provide evidence of an overnight reaction to closed‐period management forecast releases.Our results are consistent with explanations for voluntary disclosure that rely on a precommitted policy of information asymmetry reduction (see Diamond 1985; King, Pownall, and Waymire 1990). These explanations lead to predictions of strategic timing of greater shocks in the nontrading period in order to provide the less‐informed with a period for information evaluation.Résumé. À partir d'un échantillon de 856 prévisions de bénéfices publiées par la direction de diverses entreprises, les auteurs démontrent que les prévisions publiées par les gestionnaires en période où les titres ne sont pas négociés ont davantage d'impact. Les résultats qu'ils obtiennent ne dépendent pas du caractère exogène (bénéfices comptables inattendus) ou endogène (réaction du marché des valeurs mobilières) de la mesure de l'impact. L'effet du choix du moment est plus prononcé pour les prévisions moins précises (c'est‐à‐dire à intervalle ouvert et à intervalle fermé). Les auteurs démontrent aussi qu'il se produit une réaction à la publication de prévisions par la direction en période de fermeture, dans les vingt‐quatre heures qui suivent la publication.Les résultats de l'étude sont conformes au principe de la présentation facultative d'information dont l'explication repose sur une politique, préalablement adoptée, de réduction de l'asymétrie de l'information (voir Diamond, 1985; King, Pownall et Waymire, 1990). Cette explication mène à des prédictions voulant que l'on choisisse, à des fins stratégiques, les périodes de non‐négociation des titres pour publier les prévisions de bénéfices dont l'impact est plus grand, de manière à laisser aux investisseurs moins bien informés un certain laps de temps pour évaluer l'information.

Jump-diffusion processes in the foreign exchange markets and the release of macroeconomic news

This study provides an examination of the effect of public news on inter-day exchange-rate return volatility. Unlike previous studies, the impacts ofboth U.S. and foreign macroeconomic news announcements are examined in the currency futures market for the Japanese yen, British pound, and Deutsche mark. Diffusion and jump-diffusion process models are developed which contain parameters conditional on the release of news. These models are estimated using the method of maximum likelihood, and are tested versus unconditional diffusion and jump-diffusion models using likelihood ratio tests. The results reveal that conditional variance diffusion and jump-diffusion process models dominate the equivalent non-conditional models. Over the period studied (January 1988–December 1990) U.S. merchandise trade balance and industrial production announcements had a significantly greater impact on trading period volatility than money supply or inflation announcements did. Foreign news was also found to have a substantially lower effect on foreign trading-period variance than U.S. news had on U.S. trading period variance. In addition, the correlation between the yen, pound, and mark was highest on days of U.S. macroeconomic news. Thus, this study provides evidence that the currency return generating process is not characterized by a simple diffusion process over trading and non-trading periods. Further, the release of U.S. and foreign macroeconomic news has been shown to provide additional understanding of the currency return process over and above that of more complex models such as a jump-diffusion process.

Information, trading, and volatility

We examine the effects of trading and information flows on the short-run behavior of stock prices by comparing the behavior of stock return volatility during trading and nontrading periods. We define nontrading periods as periods when exchanges and businesses are open but traders endogenously choose not to trade. After correcting for the bid/ask bounce and stickiness in quotes, we find that a large proportion of daily stock return volatility occurs without trades, especially for large firms. Furthermore, we provide new evidence that public (versus private) information is the major source of short-term return volatility.

Bid-ask spreads in the interbank foreign exchange markets

This study provides evidence on quotations and bid-ask spreads in the wholesale foreign exchange market, and introduces a method to document variation in the placement of quotes relative to asset value. I find that spreads widen with proxies for inventory-carrying costs, including forecasts of price risk and a measure of liquidity costs. Increases in spreads before nontrading periods can also be attributed to inventory costs. The location of currency quotes in relation to value is not constant, and the outcome of hypothesis tests regarding changes in currency value can be sensitive to allowances for variation in quote location.

INTRADAY TRADING PATTERNS IN THE EQUITY OPTIONS MARKETS

AbstractBased on the analysis of data for over two million options transactions on the Chicago Board of Options Exchange, we find significant U‐shaped intraday patterns in trading volume, transaction size, proportion of trades at the ask or bid, and other variables in the equity options market. These previously undocumented intraday temporal patterns are largely consistent with exogenous temporal influences on transactions volume in anticipation of and following nontrading periods. These patterns are also largely consistent with strategic trading endogenous to the market and are related to interactions between informed and liquidity or noise traders.

The Stock Market Response to Earnings Announcements Released During Trading versus Nontrading Periods

The Stock Market Response to Earnings Announcements Released During Trading versus Nontrading Periods

Weekly Patterns in Japanese Stock Returns

This study investigates the day of the week effect in the Japanese stock returns. Low Tuesday and high Wednesday returns are observed. Most of the positive returns arise during the nontrading period. The Monday effect is also observed in the week whose previous week is closed by Friday trading. Low Tuesday returns appear to be related to low Monday returns in the U.S. The weekly pattern is more pronounced for the returns of smaller firms. A reverse size effect is observed during the trading period.

New Findings Regarding Day-of-the-Week Returns over Trading and Non-Trading Periods: A Note

New Findings Regarding Day-of-the-Week Returns over Trading and Non-Trading Periods: A Note

A Theory of Common Stock Returns Over Trading and Non-Trading Periods

The Journal of FinanceVolume 35, Issue 3 p. 729-751 Article A Theory of Common Stock Returns Over Trading and Non-Trading Periods GEORGE S. OLDFIELD JR., GEORGE S. OLDFIELD JR.Search for more papers by this authorRICHARD J. ROGALSKI, RICHARD J. ROGALSKISearch for more papers by this author GEORGE S. OLDFIELD JR., GEORGE S. OLDFIELD JR.Search for more papers by this authorRICHARD J. ROGALSKI, RICHARD J. ROGALSKISearch for more papers by this author First published: June 1980 https://doi.org/10.1111/j.1540-6261.1980.tb03495.xCitations: 79 Graduate School of Business and Public Administration, Cornell University and The Amos Tuck School of Business Administration, Dartmouth College. Helpful comments were received from Marshall Blume, Thomas Dyckman, Dale Morse, and Seymour Smidt. We especially thank Seha Tinic and Robert Officer for their thoughtful suggestions. Careful analysis of the accuracy of the data plus computer expertise was graciously provided by Dorthy Bower. Partial finding of this study came from the Tuck Associate Research Program. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Citing Literature Volume35, Issue3June 1980Pages 729-751 RelatedInformation

A Theory of Common Stock Returns Over Trading and Non‐Trading Periods

The Journal of FinanceVolume 35, Issue 3 p. 729-751 Article A Theory of Common Stock Returns Over Trading and Non-Trading Periods GEORGE S. OLDFIELD JR., GEORGE S. OLDFIELD JR.Search for more papers by this authorRICHARD J. ROGALSKI, RICHARD J. ROGALSKISearch for more papers by this author GEORGE S. OLDFIELD JR., GEORGE S. OLDFIELD JR.Search for more papers by this authorRICHARD J. ROGALSKI, RICHARD J. ROGALSKISearch for more papers by this author First published: June 1980 https://doi.org/10.1111/j.1540-6261.1980.tb03495.xCitations: 78 Graduate School of Business and Public Administration, Cornell University and The Amos Tuck School of Business Administration, Dartmouth College. Helpful comments were received from Marshall Blume, Thomas Dyckman, Dale Morse, and Seymour Smidt. We especially thank Seha Tinic and Robert Officer for their thoughtful suggestions. Careful analysis of the accuracy of the data plus computer expertise was graciously provided by Dorthy Bower. Partial finding of this study came from the Tuck Associate Research Program. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Citing Literature Volume35, Issue3June 1980Pages 729-751 RelatedInformation