Economics, Econometrics and Finance
8 years ago

Trading patterns reveal higher spreads at market opening and closing.

The Journal of Finance
An Analysis of Intraday Patterns in Bid/Ask Spreads for NYSE Stocks
Thomas H. McInish, R.J.K. Wood

Paper Summary

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The study looked at bid-ask spreads for NYSE stocks throughout the trading day. Minute-by-minute spreads showed a reverse J-shaped pattern, with spreads higher at the beginning and end of the day. Factors like activity, risk, information, and competition were found to influence spreads. A linear regression model confirmed a significant relationship between these factors and intraday spreads. Overall, spreads tend to be higher at the start and end of the trading day compared to the middle period.