Who Trades at the Close? Implications for Price Discovery and Liquidity

61 Pages Posted: 25 Nov 2019 Last revised: 8 Sep 2021

See all articles by Vincent Bogousslavsky

Vincent Bogousslavsky

Boston College - Department of Finance

Dmitriy Muravyev

Michigan State University - Department of Finance; Canadian Derivatives Institute

Date Written: September 7, 2021

Abstract

Closing auctions set daily closing prices for U.S. stocks and account for a striking 7.5% of daily volume in 2018, up from 3.1% in 2010. We study the causes and implications of this major trend. Difference-in-difference analyses suggest that closing volume is fueled directly and indirectly by the growth of indexing and ETFs. Auctions usually match large volume cheaply. However, we identify several concerns. The auction price almost never settles within the bid-ask spread, mostly due to the binding tick size. Auction price deviations revert quickly and completely. Finally, as trading migrates to the close, liquidity at the open worsens.

Keywords: Closing auction, passive investing, price pressure, liquidity

JEL Classification: G11, G12, G14

Suggested Citation

Bogousslavsky, Vincent and Muravyev, Dmitriy, Who Trades at the Close? Implications for Price Discovery and Liquidity (September 7, 2021). 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

Canadian Derivatives Institute ( email )

3000, chemin de la Côte-Sainte-Catherine
Montréal, Québec H3T 2A7
Canada

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