International trading/nontrading time effects on risk estimation in futures markets

✍ Scribed by Joanne Hill; Thomas Schneeweis; Jot Yau

• Publisher: John Wiley and Sons
• Year: 1990
• Tongue: English
• Weight: 932 KB
• Volume: 10
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.3990100408

✦ Synopsis

Introduction

growing body of academic literature exists on trading versus nontrading time ef-A fects on the risk and return characterisitics of securities traded in U.S. financial markets. Trading time refers to the period over which a security is openly traded in either a central market (e.g., NYSE, CBOT) or an active over-the-counter market. For example, the U.S. stock markets' trading time is usually designated as the period between 9:30 A.M.-4:00 P. M. EST. Nontrading time is often defined as that period in which the principal market where a security is traded is closed. For weekdays, the U.S. stock markets' nontrading time is usually designated as the period between 4:OO P.M.-9:30 A.M. EST.

Trading and nontrading time studies of U.S. security markets have been conducted in the cash (French and Roll (1986)) as well as futures markets (Chiang and Tapley (1983)). ' Cornell (1985' Cornell ( , 1981) ) and Dyl and Maberly (1986) have focused on differing returns andlor variances between weekdays and weekends. Recent studies by Chiang and Tapley (1983), Ferris andChance (1987), French and Roll (1986), however, have tested also for differences in the risk and return relationship between overnight and day trading a well as in intra-day return patterns.

The authors would like to thank Uttama Savanayana and Dawn Diorio for their assistance in this article. An earlier version was presented at the 1988 Financial Management Association meeting in New Orleans, Louisiana.

'The actual definition of trading and nontrading times in empirical studies is somewhat dependent on the researchers' view of an inactive market. For example, trading time in the U.S. stock market has been those hours when the NYSE is open, despite the fact that some U.S. equity securities are traded over other time intervals on the Pacific Stock Exchange and in London and Tokyo.