OPENING RETURNS,NOISE, AND OVERREACTION

In this article a partial‐adjustment model, which shows how equity prices fail to adjust instantaneously to new information, is estimated using a Kalman filter. For the components of the Dow Jones Industrial 30 index I aim to identify whether overreaction or noise is the cause of serial correlation and high volatility associated with opening returns. I find that the tendency for overreaction in opening prices is much stronger than for closing prices; therefore, overreaction rather than noise may account for differences in the return behavior of opening and closing returns. JEL classification: G15     

Noise and the Trading Mechanism: the Case of SETS

On 20 October 1997 the London Stock Exchange introduced a new trading system called SETS. This system was to replace the dealer system SEAQ, which had been in operation since 1986. Using the iterative sum of squares test introduced by Inclan and Tiao (1994) , we investigate whether there was a change in the unconditional variance of opening and closing returns, at the time SETS was introduced. We show that for the FTSE‐100 stocks traded on SETS, on the days following its introduction, there was a widespread increase in the volatility of both opening and closing returns. However, no synchronous volatility changes were found to be associated with the FTSE‐100 index or FTSE‐250 stocks. We conclude therefore that the introduction of the SETS trading mechanism caused an increase in noise at the time the system was introduced.     

The Impact of Role Training in a User-Driven Group Support System Environment

We tested the proposition that training groups to use roles would improve performance in a user-driven, GSS-supported meeting. Two methods of role training, fixed and rotated roles, were compared against a control procedure in which no formal role training was provided. In a repeated measures experiment, half of the groups completed four generate-creative tasks, while the remaining groups completed three generate-creative tasks followed by one choice-intellective task. Both role training methods were successful in reducing the time spent by groups orienting themselves to the technology, particularly in the choice-intellective task context; however, decision quality or quantity did not improve with role training.