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Arbitrage, Nontrading, and Stale Prices: October 1987

Allan W. Kleidon
The Journal of Business
Vol. 65, No. 4 (Oct., 1992), pp. 483-507
Stable URL: http://www.jstor.org/stable/2353194
Page Count: 25
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Arbitrage, Nontrading, and Stale Prices: October 1987
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Abstract

This article explains a puzzle created by the Standard and Poor's 500 cash and futures prices during the crash of October 1987. The cash index appears to be a moving average of the futures, but non-trading in constituent stocks explains only the initial period of delayed openings. However, execution of stale limit buy orders, given the high volume and NYSE market mechanisms at the time, resulted in extraordinary levels of stale stock prices that were not caused by nontrading. The model is supported in aggregate S&P data and transactions data for individual stocks.

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