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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.