Efficiency and price clustering in the Baltic stock exchanges: evidence from a micro-level analysis

ABSTRACT

In this article, we examine for the first time a set of securities traded in the Baltic stock exchanges for indication of price clustering. This study adds to the literature about the efficiency of the Baltic stock markets, as well as to knowledge about the clustering of financial prices. Our main conclusion is that clustering is pervasive at the firm level, with traders having a striking preference for closing prices ending in zero. Price clustering tends to increase with price level, turnover, and relative spread and to decrease with tick size. Overall, our results are consistent with the idea that the lower the cost of rounding prices and the greater the uncertainty about the proper value of the securities, the higher the propensity of prices to cluster at round numbers. Therefore, the evidence provides some support for the negotiation/resolution hypotheses.

KEYWORDS:

• Price clustering
• stock market
• Baltic states
• Estonia
• Lithuania
• Latvia

Acknowledgments

This research has been financed by Portuguese public funds through FCT (Fundação para a Ciência e Tecnologia, I.P.) within the framework of the project with reference UIDB/04105/2020

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the Fundação para a Ciência e Tecnologia, I.P. [UIDB/04105/2020].

Notes on contributors

Júlio Lobão

Júlio Lobão is an Assistant Professor at the School of Economics and Management of the University of Porto, Portugal, having previously worked as a financial consultant in the wealth management industry. He has authored eight books, as well as several dozen academic papers in the fields of financial markets and behavioral finance.