Volatility, Efficiency and Trading: Evidence from the Japanese Stock Market

We study the joint effect of the trading mechanism and the time at which transactions take place on the behavior of stock return using data from Japan. The Tokyo Stock Exchange employs a periodic clearing procedure twice a day, at the opening of both the morning and afternoon sessions. This enables us to discern the effect of the clearing mechanism from the effect of the overnight trading halt. While the periodic clearing at the beginning of the trading day is noisy and inefficient, the mid-day clearing transaction appears to be no worse than the two closing transactions.