# Emergence of stylized facts during the opening of stock markets

## TL;DR

This paper investigates how stable stylized facts, like the bid-ask spread behavior, emerge during stock market opening hours despite market non-stationarities, revealing a power-law decline pattern.

## Contribution

It demonstrates the emergence of a universal power-law decline in bid-ask spreads during market opening, highlighting differences for large-tick stocks and variability across stocks.

## Key findings

- Bid-ask spreads follow a power-law decline during trading hours.
- Large-tick stocks behave differently, with spreads closing quickly.
- Market opening duration varies significantly among stocks.

## Abstract

Financial markets show a number of non-stationarities, ranging from volatility fluctuations over ever changing technical and regulatory market conditions to seasonalities. On the other hand, financial markets show various stylized facts which are remarkably stable. It is thus an intriguing question to find out how these stylized facts emerge. As a first example, we here investigate how the bid-ask-spread between best sell and best buy offer for stocks develops during the trading day. For rescaled and properly smoothed data we observe collapsing curves for many different NASDAQ stocks, with a slow power law decline of the spread during the whole trading day. This effect emerges robustly after a highly fluctuating opening period. Some so called large-tick stocks behave differently because of technical boundaries. Their spread closes to one tick shortly after the market opening. We use our findings for identifying the duration of the market opening which we find to vary largely from stock to stock.