Interdaily Volatility in a Continuous Order‐Driven Market

Abstract

Since Amihud and Mendelson (1987) documented a higher open-to-open return volatility compared to close-to-close return volatility in the US market, there have been various explanations offered, such as call auction opening, a long halt of trade, and specialist systems. No consensus has been reached so far. As an order-driven dealership market, the Hong Kong stock market provides another dimension for examination. If halt of trade is the major cause of the open-to-open volatility in the Hong Kong market, this volatility should also be higher. This is not observed. Positive autocorrelation of the open-to-open return series also suggests that there is no temporary price deviation at market opening. We view these as consistent with the specialist argument put forth by Stoll and Whaley (1990). Copyright Blackwell Publishers Ltd 1999.

Interday and intraday volatility: Additional evidence from the Shanghai Stock Exchange

“…Therefore, the markets provide a clear and simple case for the research of the relations between volatility and trading mechanisms because there is much less correlation of both the return and return volatility between the SHSE and other markets, which affects the pattern of broadly follow a U-shaped pattern (Wood et al, 1985) while the volatility of returns broadly follows an L-shaped pattern. This result is consistent with the previous findings on the Hong Kong market (Lam and Tong, 1999;Tang and Lui, 2002). …”

“…In contrast, Lam and Tong (1999) show that an overnight variance of 0.027 is more than double the midday break variance of 0.001 in terms of unit time volatility. They argue that the higher overnight variance was attributed to probably the trading of some component stocks in London overnight.…”

“…In Table 5, the results from the Levene- close in the afternoon session, which is not consistent with the pattern documented in the US market -rather it is consistent with the Hong Kong market (Lam and Tong, 1999;Tang and Lui, 2002). One possible reason is that the market portfolio's rebalancing force, which causes higher volatility at the close in the US market, does not exist on the Chinese market.…”

Analysis of Intra-Day Volatility under Economic Crisis Conditions

“…L-shaped patterns were, also, identified among others by Harris (1986), Deniz et al (2002), Lam and Tong (1999) and Tang and Lui (2002). On the contrary, Wood et al (1985), Harris (1986), Lockwood and Linn (1990), Werner and Kleidon (1996), Ozenbas, Schwartz and Wood (2002) suggested a U-shaped pattern for DAX.…”

“…The U-shaped pattern of the intra-day volatility was further explored by Lam and Tong (1999) who found that the U shape was formed by the volatility of the first and the last half hour trading periods of the studied stock exchange trading. Their findings were confirmed by Ozenbas et al (2002) some years later.…”