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Please use this identifier to cite or link to this item: http://hdl.handle.net/2262/61585

Title: Opening and closing asymmetry: empirical analysis from ISE Xetra
Author: Kelly, Robert J.
Keywords: Stock market
Trading
Ireland
Share prices
Issue Date: 2008
Publisher: Economic & Social Research Institute
Citation: Kelly, Robert J. 'Opening and closing asymmetry: empirical analysis from ISE Xetra'. - Economic & Social Review, Vol. 39, No. 1, Spring, 2008, pp. 55–78, Dublin: Economic & Social Research Institute
Abstract: Overnight news yields difficulties for price discovery at market opening culminating in additional return volatility. Biais et al. (2007) show opening prices are sensitive to order flow from the pre-trading session. We investigate the existence of volatility asymmetry between opening and closing returns and trader over-reaction on the Irish Stock Exchange (ISE). Opening on the ISE follows a non-transparent pre-trading session. We estimate opening returns are 10 per cent more volatile than closing returns. This is significantly smaller compared to other exchanges, such as LSE. The LSE operates under a transparent pre-trading session, which is susceptible to order flow manipulation. We implement an ARMA(1,1) framework to investigate the speed of trader reaction to news. Over-reaction is recorded at the morning auction but is smaller in magnitude when compared to international markets with transparent pre-trading and ‘non-binding’ orders. The level of price reversal bolsters the over-reaction argument. We estimate a 30 per cent reversal of overnight returns with one third taking place in the first thirty minutes of trading.
Description: Paper delivered at the Twenty-First Annual Conference of the Irish Economic Association, Bunclody, Co. Wexford, April 25–27, 2007
URI: http://hdl.handle.net/2262/61585
ISSN: 00129984
Appears in Collections:The Economic and Social Review, Vol. 39, No. 1, Spring, 2008
Economic and Social Review Archive: Complete Collection 1969-

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