A Note on Price Noises and Their Correction Process: Evidence from Two Equal-Payoff Government Bonds

Lauterbach, Beni; Wohl, Avi

A Note on Price Noises and Their Correction Process: Evidence from Two Equal-Payoff Government Bonds

Journal of Banking and Finance, Vol. 25, 2001

22 Pages Posted: 21 Oct 2013

See all articles by Beni Lauterbach

Beni Lauterbach

Bar-Ilan University - Graduate School of Business Administration; European Corporate Governance Institute (ECGI)

Avi Wohl

Tel Aviv University - Coller School of Management

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

Suggested Citation: Suggested Citation

Lauterbach, Beni and Wohl, Avi, A Note on Price Noises and Their Correction Process: Evidence from Two Equal-Payoff Government Bonds (March 21, 2001). Journal of Banking and Finance, Vol. 25, 2001. Available at SSRN: https://ssrn.com/abstract=2343003