The paper examines the intraday pattern of bid-ask spreads for Nasdaq stocks on trading days around holidays. A plot of mean percentage bid-ask spreads shows that spreads are highest at the open, fall slightly after the first few minutes of trading, and remain relatively constant till around the close of trading, when they fall slightly. The results of this study are consistent with those of Chan et al. (1995), but inconsistent with those of Chung and Zhao (2003). We attribute the observed pattern of spreads in this study to the low participation of Electronic Communication Networks (ECNs) on trading days around holidays. Finally, we show that both the intraday trading volume and volatility patterns are `U-shaped', supporting the results documented on regular trading days.

Ariel (1990); Chordia et al. (2001); Frieder and Subrahmanyam (2004); and Van Ness et al. (2005) record different behavior of stock attributes on trading days surrounding a period of prolonged market closure. Chordia et al. (2001); and Van Ness et al. (2005) report high bid-ask spreads and low trading activity on trading days immediately surrounding a period of prolonged market closure. Ariel documents abnormally high returns and low volatility on trading days immediately preceding holidays. This implied inverse relationship between spreads and volatility on trading days immediately preceding holidays is contrary to the direct relationship reported by Branch and Freed (1977); and Hamilton (1978) on normal trading days.

Frieder and Subrahmanyam (2004) examine the impact of Jewish holidays on the US equity markets. Consistent with the documented sluggish trading activity around periods of prolonged market closure, Frieder and Subrahmanyam show that both the dollar trading volume and average returns significantly decline on Yom Kippur, a solemn day of atonement. However, Frieder and Subrahmanyam show that average returns are positive, but trading volume declines on Rosh Hashanah, a holiday of merrymaking. The decline in trading activity around these Jewish holidays is attributed to the fact that traders exit the market in preparation for religious observance. In view of this documentation, it is reasonable to suggest that low trading volume reported on pre-holiday trading days is due to traders exiting the market prior to a holiday in preparation for the holiday observance. In a study on the impact of localized trading behavior on Nasdaq stocks from 1984 through 1997, Loughran and Schultz (2004) support the findings of Frieder and Subrahmanyam by showing that trading volume, as measured by the number of shares traded, drops around Yom Kippur and that the effect is substantially greater for firms located in cities with higher Jewish population.

The IUP Journal of Applied Finance, Nasdaq Stocks, Electronic Communication Networks, ECNs, Volatility Patterns, Equity Markets, Quote-Driven Market System, Market Sentiment Hypothesis, Securities and Exchange Commission, SEC, Nasdaq Markets, London Stock Exchange, Trade and Automated Quotations Database, TAQ.