Price Formation on Stock Exchanges: The Evolution of Trading within the Day

Posted: 14 May 2000

See all articles by Mason S. Gerety

Mason S. Gerety

Northern Arizona University - Department of Finance

J. Harold Mulherin

University of Georgia - Department of Banking and Finance

Abstract

Prior analysis of prices of the NYSE and other exchanges find that transitory price volatility is greater at the open of trading than at the close. We extend this line of research by using 40 years of hourly Dow Jones 65 Composite price index data to estimate transitory volatility throughout the trading day. Our results indicate that transitory volatility steadily declines during the trading day. We find a similar intraday decline in transitory volatility for a two-and-a-half-year sample of the individual firms in the Dow Jones 30 Industrials Index. The results are consistent with the hypothesis that trading aids price formation and do not support the argument that particular trading mechanisms are the source of greater volatility at the open of trading.

JEL Classification: G14

Suggested Citation

Gerety, Mason S. and Mulherin, J. Harold, Price Formation on Stock Exchanges: The Evolution of Trading within the Day. REVIEW OF FINANCIAL STUDIES Volume 7, Number 3, 1994. Available at SSRN: https://ssrn.com/abstract=5341

Mason S. Gerety (Contact Author)

Northern Arizona University - Department of Finance ( email )

PO Box 15066
Flagstaff, AZ 86011
United States
602-523-7355 (Phone)
602-523-7331 (Fax)

J. Harold Mulherin

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States
706-542-3644 (Phone)

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