everal studies such as and document that S equity returns are more volatile during trading hours than during non-trading hours.
In a recent paper, examine the behavior of the daily (close to close) returns of all NYSE and AMEX stocks. They find that trading hour return variance is much higher than non-trading hour variance and conclude that the extra trading hour variance in equity returns can be attributed predominantly to private information trading. Some traces of noise trading are also documented.
The purpose of this study is to test whether the extra trading hour volatility which has been documented in stock markets also exists in the gold futures market and to document variations in the distribution of intraday futures returns over the course of a trading day.' A discussion of how these might be related to information and noise trading is included.
I. DATA AND METHODOLOGY
A. The Data
The empirical work employs gold futures transactions data obtained from the Chicago Mercantile Exchange. Gold is chosen because it represents a universally-recognized and widely traded commodity.
The study focuses on the behavior of the December 1978 and the March 1979 gold contracts. For each of these contracts, price quotes from the four months prior to (and not including) the delivery month are investigated. The resulting December 1978 contract price file contains 59,420 observations and the March 1979 contract price file contains 53,786 observations. The comments of Mike Long and an anonymous referee are gratefully acknowledged. All remaining errors are our own.
'The decision to study intraday returns reinforces the decision to focus on futures markets. Futures exchanges employ a uniform market structure throughout the trading day while the NYSE does not (see Amihud and Mendelson (1987)). This uniformity of market structure is important for a study which seeks to document variations in the return distribution throughout the day.