The Timing of Opening Trades and Pricing Errors | Zendy

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The Timing of Opening Trades and Pricing Errors

Author(s) -

Kim Sukwon Thomas

Publication year - 2013

Publication title -

financial management

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 1.647

H-Index - 68

eISSN - 1755-053X

pISSN - 0046-3892

DOI - 10.1111/fima.12009

Subject(s) - volatility (finance) , stock (firearms) , economics , financial economics , monetary economics , profit (economics) , volume weighted average price , stock market , business , cost price , econometrics , microeconomics , mechanical engineering , paleontology , horse , engineering , biology

After demonstrating that a zero investment trading strategy that buys stocks with overnight returns below the market average and sells stocks with overnight returns above the market average earns more than 1% monthly profit, I demonstrate that this profit is greater for stocks that start trading more quickly than for other stocks. These results control for trading costs. The resulting pricing errors are a material portion of stock price volatility and suggest that a quick response to overnight information adds non‐information‐based stock volatility to stock prices.

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