Abstract
In this study, we employ statistical analysis, hypothesis testing, and regression models to investigate the characteristics of opening price gap rates and price gaps in the stock market indices of Mainland China, utilizing historical data. To clarify, while both ’opening price gap rate’ and ’price gaps’ are central to our analysis, they represent distinct concepts. The opening price gap rate refers to the rate at which a stock’s opening price differs from its previous closing price, indicating initial market sentiment and potential momentum for the trading day. In contrast, price gaps, as defined in technical analysis, are specific chart patterns formed by two adjacent candlesticks on consecutive trading days. These patterns are characterized either by one candlestick’s low being higher than the following day’s high, or one candlestick’s high being lower than the following day’s low, creating a "blank" area on the price chart. This signifies a price range with no trading activity and is a crucial indicator of market sentiment and potential directional moves. Our study tested and validated thirteen related hypotheses. The findings reveal a significant correlation between the directionality of price gaps and the fluctuations in opening price gap rates, highlighting key characteristics of the market. Notably, price gaps significantly impact daily changes in trading volume and turnover. Furthermore, we validated the efficacy of the opening price gap rate as a stock-picking factor through back-testing. This research offers a new perspective for understanding stock market behaviors and has considerable implications for investment decisions and market analysis.
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Si, Y., Nadarajah, S. Price Gap Anomaly: Empirical Study of Opening Price Gaps and Price Disparities in Chinese Stock Indices. Asia-Pac Financ Markets (2024). https://doi.org/10.1007/s10690-024-09461-y
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DOI: https://doi.org/10.1007/s10690-024-09461-y