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

67 Pages Posted: 25 Nov 2019 Last revised: 3 Dec 2020

See all articles by Vincent Bogousslavsky

Vincent Bogousslavsky

Boston College - Department of Finance

Dmitriy Muravyev

Michigan State University - Department of Finance

Date Written: December 3, 2020

Abstract

We document the growing importance of the closing auction in the U.S. equity market and study its causes and implications. The closing auction accounts for a striking 7.5% of daily volume in 2018, up from 3.1% in 2010. The growth of indexing and ETFs shifts trading towards the close and distorts closing prices: they often deviate from closing quote midpoints, but the deviations revert by half shortly after the close and fully overnight. As volume migrates towards the close, liquidity at the open deteriorates. Finally, we introduce a novel measure of investor disagreement, the ratio of auction-to-total volume, and show that higher disagreement positively predicts future stock returns.

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

JEL Classification: G11, G12, G14

Suggested Citation

Bogousslavsky, Vincent and Muravyev, Dmitriy, Who Trades at the Close? Implications for Price Discovery, Liquidity, and Disagreement (December 3, 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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