A Note on Price Noises and Their Correction Process: Evidence from Two Equal-Payoff Government Bonds
22 Pages Posted: 21 Oct 2013
Date Written: March 21, 2001
Abstract
The study offers the most direct evidence to date on price noises in call auctions and their correction. We examine a unique sample of two identical securities (two equal-payoff Israeli government bonds) that were traded on separate yet almost simultaneous auctions on the Tel-Aviv Stock Exchange. The prices of the bonds were equal on average. However, on most of the sample days there were prices differences between the bonds. Various estimates suggest that the price noise in one bond is practically uncorrelated with that of the other, and both disappear by the end of the next-day auction.
Keywords: market microstructure; market efficiency; price noise; price correction
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