Market microstructure.

• Position: National Bureau of Economic Research meeting

Members of the NBER's Research Group on Market Microstructure met in Cambridge on May 14. Bruce Lehmann, University of California, San Diego; Andrew Lo, NBER and MIT; Matthew Spiegel, University of California, Berkeley; and Avanidhar Subramanyam, University of California, Los Angeles, organized this program:

David Cushing, ITG, Inc., and Ananth Madhaven, University of Southern California, "Stock Returns and Institutional Trading at the Cross"

Discussant: Simon Gervais, University of Pennsylvania

Lawrence Harris, University of Southern California, and Vankatesh Panchapagesan, Washington University, "The Information Consent of the Limit-Order Book: Evidence from the NYSE Specialist Actions"

Discussant: Mark Lipson, New York Stock Exchange

Clifford Ball and Tarun Chordia, Vanderbilt University, "True Spreads and Equilibrium Prices"

Discussant: Charles Cao, Pennsylvania State University

Thierry Foucault, HEC; Ailsa Roell, Princeton University; and Patrik Sandas, University of Pennsylvania, "Imperfect Market Monitoring and SOES Trading"

Discussant: Paul Schultz, University of Notre Dame

Bruno Biais and Sebastien Pouget, Toulouse University, "Learning to Play Equilibrium Strategies in Experimental Financial Markets: Does Microstructure Matter?"

Discussant: Utpal Bhattacharya, Indiana University

Closing prices are used to calculate portfolio returns, to tally the net asset values of mutual funds, and as a basis for certain types of contracts and after-hours trading. Consequently, many institutional traders seek to trade at or near the close, which in turn gives rise to concerns about associated imbalances and possible gaming behavior. Cushing and Madhaven empirically analyze the behavior of stock returns at the market close for stocks of the Russell 1000, using both transaction-level data for June 1997 to July 1998 and the complete record of all market on close order imbalance indications issued by New York Stock Exchange specialists. The authors show that the last five minutes of the trading day explain a disproportionate fraction of the variation in daily returns - almost 18 percent in portfolios - although the closing period constitutes only 1.3 percent of trade time. This return phenomenon reflects both a higher fraction of nonblock trades and higher sensitivity of price to the flow of nonblock orders in the closing period. Finally, they find that systematic return reversals following order imbalance publications are consistent with temporary...