Trading Patterns, Bid-Ask Spreads and Estimated Security Returns: The Case of Common Stocks at Calendar Turning Points (Reprint 008)

Donald Keim ()

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: Returns computed with closing bid or ask prices that may not represent "true" prices imparts measurement error into portfolio returns if investor buying and selling behavior displays systematic patterns. This paper finds systematic tendencies for closing prices to be recorded at the bid in December and at the ask in early January. After controlling for changing bid and ask prices, this pattern results in large portfolio returns on the two trading days surrounding the end of the year, especially for low-price stocks. Other temporal return patterns (e.g., weekend and holiday effects) are also related to systematic trading patterns.

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