The authors of this article present convincing evidence that opening prices differ from closing prices. Their major empirical finding is that returns that are measured from the opening of the market to the next open have higher variance than returns measured from the close of trade to the next close. This result is also found in Amihud and Mendelson (1987), but this article improves on the Amihud-Mendelson study by using a larger sample and by conducting a number of other tests. What is special about opening prices? The authors argue that the higher volatility of open-to-open returns is due to the strategic behavior of the specialist. The specialist sets the opening price in the call auction market that occurs at the open and is allowed to trade from his own account at this price. The authors suggest that in exploiting his monopoly position, the specialist increases the effective bid-ask...

The authors compare two methods for a monopolist to sell information to traders in a financial market. In a direct sale, information buyers observe versions of the seller's signal while in an indirect sale the seller sells shares in a portfolio based on his private information. It is shown that, when traders are identical and pricing is linear, there is a trade-off between optimal surplus extraction that is possible under direct sale and more effective control of the usage of information that is possible under indirect sale. The optimal selling method depends on how much information is revealed by equilibrium prices. Copyright 1990 by The Econometric Society.