Who Trades at the Close? Implications for Price Discovery and Liquidity
70 Pages Posted: 25 Nov 2019 Last revised: 15 May 2023
Date Written: May 8, 2023
Abstract
Closing auctions set daily closing prices for U.S. stocks and account for a striking 7.5% of daily volume in 2018, up from 3.1% in 2010. We study closing auctions in the new regime of record volume. Closing auctions appear to match volumes at low cost: closing prices typically match pre-close bid or ask prices, and price impact is lower than during continuous trading. Auction price deviations revert quickly and almost completely on average. Auction-to-intraday volume spikes on S&P 500 additions and increases permanently afterwards, suggesting that closing volume is fueled directly and indirectly by the growth of indexing and ETFs.
Keywords: Closing auction, passive investing, price pressure, liquidity
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation