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Systematic Patterns Before and After Large Price Changes: Evidence from High Frequency Data from the Paris Bourse
Abstract: : This paper examines the intra-day behavior of asset
prices shortly before and after large price changes. Whereas similar
studies so far have been based on daily closing price, I use three years of
high frequency data of 120 stocks listed on the French stock exchange.
Various systematic patterns, in addition to those often reported in the
literature, emerge from this data. I find evidence that prices do overreact
and that a correction takes place after a large price movement, especially
those to the downside. The correction does not take place immediately after
the large price change. Prior to this, some very significant and sometimes
economically important patterns can be observed. When the bid-ask spread is
taken into account, I still find some ex-post profitable trading strategies
which are too small in magnitude to suggest market inefficiency.
Keywords: predictable pattern; large price change; high frequency data; (follow links to similar papers)
JEL-Codes: G12; (follow links to similar papers)
21 pages, July 1, 1998
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