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

61 Pages Posted: 25 Nov 2019 Last revised: 1 Jun 2020

See all articles by Vincent Bogousslavsky

Vincent Bogousslavsky

Boston College - Department of Finance

Dmitriy Muravyev

Michigan State University - Department of Finance

Date Written: May 29, 2020

Abstract

The closing stock price is determined in a special call auction. This single trade accounts for 7.3% of daily 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. Half of the reversal occurs shortly after the close. These price deviations matter for ETF mispricing and put-call parity violations and their ability to predict next-day stock returns. Finally, closing-to-total daily volume negatively predicts future stock returns. Our results raise concerns about an overwhelming reliance on closing prices.

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 (May 29, 2020). 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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