Volatility, Efficiency, and Trading: Evidence from the Japanese Stock Market




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    • Yakov Amihud is from the Leonard N. Stern Graduate School of Business, New York University, New York 10006, and Faculty of Management, Tel-Aviv University, Tel Aviv, Israel. Haim Mendelson is from the Graduate School of Business, Stanford University, Stanford, CA 94305–5015. We acknowledge partial support by the Japan-U.S. Center for Business and Economics Studies at New York University, by the Business School Trust Faculty Fellowship at Stanford University, and by Apple Computer. We thank the Tokyo Stock Exchange for providing the data and Jun Shimizu for his help. We thank the anonymous referee and René Stulz, the Editor, for their helpful suggestions, and Edgar Gorres and Noam Mendelson for programming assistance.


We study the joint effect of the trading mechanism and the time at which transactions take place on the behavior of stock returns using data from Japan. The Tokyo Stock Exchange employs a periodic clearing procedure twice a day, at the opening of both the morning and the afternoon sessions. This enables us to discern the effect of the clearing mechanism from the effect of the overnight trading halt. While the periodic clearing at the beginning of the trading day is noisy and inefficient, the midday clearing transaction appears to be no worse than the two closing transactions.