Direct Evidence of Non-Trading on the London Stock Exchange

25 Pages Posted: 25 Apr 2002

See all articles by Andrew Clare

Andrew Clare

City University London - Sir John Cass Business School

Gareth Morgan

York University - Schulich School of Business

Stephen Thomas

University of Southampton - School of Management

Abstract

The extent of non-trading is shown to be much greater in the UK than in the more heavily researched US equity markets. Over the period 1975 to 1995 we find that almost 44% of all stocks in our sample failed to trade on the last day of a given month, a figure which is significantly higher than for stocks in the US (see Foerster and Keim, 1993). In this paper we investigate the relationship between the non-trading of UK stocks and the autoregressive and seasonal behaviour of UK stock returns. In addition, we find that stocks are much more likely to be recorded as not having traded on the last day of the month in the period prior to April 1981 than after this date. We trace this result to a reporting requirement change on the London Stock Exchange and investigate whether the change has any real implications for systematic risk estimates over this period. We also find that alternative methods for calculating betas, in the presence of thin trading, are very sensitive to stock size and to non-trading.

Suggested Citation

Clare, Andrew D. and Morgan, Gareth and Thomas, Stephen, Direct Evidence of Non-Trading on the London Stock Exchange. Journal of Business Finance & Accounting, Vol. 29, pp. 29-53, 2002. Available at SSRN: https://ssrn.com/abstract=309107

Andrew D. Clare (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Gareth Morgan

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-5095 (Phone)

Stephen Thomas

University of Southampton - School of Management ( email )

Highfield
Southampton S017 1BJ, Hampshire SO17 1BJ
United Kingdom
+44 23 8059-3068 (Phone)
+44 23 8059-3844 (Fax)

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