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ABSTRACT This paper examines the effects of the mechanism by which securities are traded on their price behavior. We compare the behavior of open‐to‐open and close‐to‐close returns on NYSE stocks, given the differences in execution methods applied in the opening and closing transactions. Opening returns are found to exhibit greater dispersion, greater deviations from normality and a more negative and significant autocorrelation pattern than closing returns. We study the effects of the bid‐ask spread and the price‐adjustment process on the estimated return variances and covariances and discuss the associated biases. We conclude that the trading mechanism has a significant effect on stock price behavior.
Amihud et al. (Wed,) studied this question.