Emergence of Stylized Facts During the Opening of Stock Markets

8 Pages Posted: 3 Jan 2019

See all articles by Sebastian Krause

Sebastian Krause

University of Duisburg-Essen

Jonas Fiegen

University of Duisburg-Essen

Thomas Guhr

University of Duisburg-Essen

Date Written: December 18, 2018

Abstract

Financial markets show a number of non-stationarities, ranging from volatility fluctuations over ever changing technical and regulatory market conditions to seasonalities. On the other hand, financial markets show various stylized facts which are remarkably stable. It is thus an intriguing question to find out how these stylized facts emerge. As a first example, we here investigate how the bid-ask-spread between best sell and best buy offer for stocks develops during the trading day. For rescaled and properly smoothed data we observe collapsing curves for many different NASDAQ stocks, with a slow power law decline of the spread during the whole trading day. This effect emerges robustly after a highly fluctuating opening period. Some so called large-tick stocks behave differently because of technical boundaries. Their spread closes to one tick shortly after the market opening. We use our findings for identifying the duration of the market opening which we find to vary largely from stock to stock.

Keywords: Market Microstructure, Financial Markets, Stylized Facts, Seasonalities, Non-Stationarity

JEL Classification: G10

Suggested Citation

Krause, Sebastian and Fiegen, Jonas and Guhr, Thomas, Emergence of Stylized Facts During the Opening of Stock Markets (December 18, 2018). Available at SSRN: https://ssrn.com/abstract=3303249 or http://dx.doi.org/10.2139/ssrn.3303249

Sebastian Krause (Contact Author)

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

Jonas Fiegen

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

Thomas Guhr

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

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