Trading Halts and Market Activity: An Analysis of Volume at the Open and the Close

Authors

  • MASON S. GERETY,

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    • Gerety is from Clemson University. Mulherin is from the Tuck School of Business, Dartmouth College. We thank an anonymous referee for extensive comments on two prior drafts. The paper has also benefitted from the comments of Andrew Christie, Allan Kleidon, Mike Maloney, Lisa Meulbroek, Mark Mitchell, Raymond Sauer, René Stulz (the editor), and seminar participants at Georgetown University, George Washington University, and the U.S. Securities and Exchange Commission. Much of the work for this paper was done while both authors visited the Office of Economic Analysis of the Securities and Exchange Commission. The SEC, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed here are those of the authors and do not necessarily represent the views of the Commission or the authors' colleagues on the Staff of the Commission.

  • J. HAROLD MULHERIN

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    • Gerety is from Clemson University. Mulherin is from the Tuck School of Business, Dartmouth College. We thank an anonymous referee for extensive comments on two prior drafts. The paper has also benefitted from the comments of Andrew Christie, Allan Kleidon, Mike Maloney, Lisa Meulbroek, Mark Mitchell, Raymond Sauer, René Stulz (the editor), and seminar participants at Georgetown University, George Washington University, and the U.S. Securities and Exchange Commission. Much of the work for this paper was done while both authors visited the Office of Economic Analysis of the Securities and Exchange Commission. The SEC, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed here are those of the authors and do not necessarily represent the views of the Commission or the authors' colleagues on the Staff of the Commission.


ABSTRACT

This paper analyzes how the daily opening and closing of financial markets affect trading volume. We model the desire to trade at the beginning and end of the day as a function of overnight return volatility. NYSE data from 1933–88 indicate that closing volume is positively related to expected overnight volatility, while volume at the open is positively related to both expected and unexpected volatility from the previous night. We interpret the symmetric response of trading at the open and the close to expected volatility as being due to investor heterogeneities in the ability to bear risk when the market is closed. This desire of investors to trade prior to market closings indicates a cost of mandating marketwide circuit breakers.

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