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Transitory Price Changes and Price-Limit Rules: Evidence from the Tokyo Stock Exchange

Published online by Cambridge University Press:  06 April 2009

Thomas J. George  and
Chuan-Yang Hwang
Thomas J. George
Affiliation:
Kellogg Graduate School of Management, Northwestern University, Evanston, IL 60208
Chuan-Yang Hwang
Affiliation:
Max M. Fisher College of Business, Ohio State University, School of Business and Management, Hong Kong University of Science and Technology, and Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, PA 15260.
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Abstract

We compare the volatility of 24-hour returns computed from the opening and closing prices of a diverse sample of Tokyo Stock Exchange (TSE) stocks. We find that volatility at the open is greater than volatility at the close only for the most actively traded TSE stocks. Daytime and overnight return covariances suggest that the volatility patterns are explained by the effect of implicit bid-ask spreads at the open and partial price adjustment at the close, both of which are related to the intensity of trading. Our results challenge the view that open-to-open returns are more volatile than close-to-close returns for stocks, in general, and are consistent with the hypothesis that TSE price limit rules have a significant impact on the dynamics of security prices.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 30 , Issue 2 , June 1995 , pp. 313 - 327
Copyright
Copyright © School of Business Administration, University of Washington 1995

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