Pricing Errors at the NYSE Open and Close: Evidence from Internationally Cross-Listed Stocks

Posted: 9 Mar 2008

See all articles by Margaret M. Forster

Margaret M. Forster

affiliation not provided to SSRN

Thomas J. George

University of Houston - Department of Finance

Abstract

We analyze the variance of pricing errors (transitory changes in prices) at the open and the close of trading for NYSE stocks that are traded in London or Tokyo, British and Japanese stocks that are listed on the NYSE, and similar stocks that are not traded abroad. The variance of pricing errors is significantly greater at the open than at the close for U.S. stocks, but not foreign stocks. These differences are explained by differences in order flow at the open and the close, and the effect of volume at the close on pricing errors is indistinguishable from the effect of volume at the open. The evidence is not supportive of hypotheses that attribute large pricing errors at the NYSE open to the specialist-assisted opening mechanism, or to traders' inability to observe recent transaction prices before the opening. Instead, our results are consistent with the simple notion that liquidity providers require greater compensation to absorb order imbalances that are, on average, larger at the NYSE open than at the close.

JEL Classification: G15

Suggested Citation

Forster, Margaret M. and George, Thomas J., Pricing Errors at the NYSE Open and Close: Evidence from Internationally Cross-Listed Stocks. Journal of Financial Intermediation, Vol. 5, 1996, Available at SSRN: https://ssrn.com/abstract=1104440

Margaret M. Forster

affiliation not provided to SSRN

Thomas J. George (Contact Author)

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States

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