Should We Use Closing Prices? Institutional Price Pressure at the Close

50 Pages Posted: 25 Nov 2019 Last revised: 3 Dec 2019

See all articles by Vincent Bogousslavsky

Vincent Bogousslavsky

Boston College - Department of Finance

Dmitriy Muravyev

Michigan State University - Department of Finance

Date Written: November 29, 2019

Abstract

The closing price is the most important stock price of the day, but is it better than alternatives? Closing prices are determined in a special call auction. This single trade accounts for 7.3% of daily stock volume in 2018 and is strongly associated with ETF ownership and institutional rebalancing. Strikingly, this huge volume contributes little to price discovery. Closing prices frequently and significantly deviate from closing quote midpoints, but these deviations on average fully revert overnight. These deviations are economically significant and make a difference for two applications that we consider: ETF mispricing, and put-call parity violations and their ability to predict next-day stock returns. Our results raise concerns about an overwhelming reliance on closing prices and highlight the costs of indexing.

Keywords: closing price, closing auction, price efficiency, institutional trading

JEL Classification: G11, G12, G14

Suggested Citation

Bogousslavsky, Vincent and Muravyev, Dmitriy, Should We Use Closing Prices? Institutional Price Pressure at the Close (November 29, 2019). Available at SSRN: https://ssrn.com/abstract=3485840 or http://dx.doi.org/10.2139/ssrn.3485840

Vincent Bogousslavsky

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Dmitriy Muravyev (Contact Author)

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

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