Stock market closure and intraday stock index futures market volatility: "Contagion", bid-ask bias or both?

Kingsley Fong, Alex Frino

Research output: Contribution to journalArticleResearchpeer-review

Abstract

Chang et al. [Journal of Business 68 (1) (1995) 61] examine the impact of the closure of the New York Stock Exchange (NYSE) on S&P500 stock index futures traded on the Chicago Mercantile Exchange. They document a decline in futures market volatility immediately after the close of the NYSE, and an increase 15 minutes later when the futures market closes. They attribute this to contagion-i.e. a decline in information transfer from equities to futures markets following the closure of the underlying market. This paper examines the impact of the extension of trading hours in Hang Seng Index futures traded on the Hong Kong Futures Exchange on the 20 November, 1998 to 15 minutes after the close of the underlying market (the Stock Exchange of Hong Kong). Using the unique natural experiment provided by this change, a pattern similar to US markets is documented for the Hang Seng Index Futures following the change in trading hours. This provides strong evidence that the intraday pattern in volatility is caused by market closure. Unlike US futures exchanges, price reporters on the floor of the Hong Kong Futures Exchange collect quote data in addition to trade data. This data facilitates a test of another plausible microstructure explanation for the observed behaviour-bid-ask bounce associated with trading activity. This paper provides evidence that bid-ask bounce also explains part of the observed intraday behaviour in price volatility.

LanguageEnglish
Pages219-232
Number of pages14
JournalPacific-Basin Finance Journal
Volume9
Issue number3
DOIs
Publication statusPublished - Jun 2001

Fingerprint

Contagion
Stock market
Futures markets
Stock index
Bid
Closure
New York Stock Exchange
Hong Kong
Natural experiment
Price volatility
Microstructure
Intraday pattern
Trading activity
Stock exchange of Hong Kong
Equity
Information transfer
Stock index futures

Keywords

  • Bid-ask bias
  • G14
  • Hong Kong
  • Market microstructure
  • Stock index futures
  • Volatility

Cite this

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abstract = "Chang et al. [Journal of Business 68 (1) (1995) 61] examine the impact of the closure of the New York Stock Exchange (NYSE) on S&P500 stock index futures traded on the Chicago Mercantile Exchange. They document a decline in futures market volatility immediately after the close of the NYSE, and an increase 15 minutes later when the futures market closes. They attribute this to contagion-i.e. a decline in information transfer from equities to futures markets following the closure of the underlying market. This paper examines the impact of the extension of trading hours in Hang Seng Index futures traded on the Hong Kong Futures Exchange on the 20 November, 1998 to 15 minutes after the close of the underlying market (the Stock Exchange of Hong Kong). Using the unique natural experiment provided by this change, a pattern similar to US markets is documented for the Hang Seng Index Futures following the change in trading hours. This provides strong evidence that the intraday pattern in volatility is caused by market closure. Unlike US futures exchanges, price reporters on the floor of the Hong Kong Futures Exchange collect quote data in addition to trade data. This data facilitates a test of another plausible microstructure explanation for the observed behaviour-bid-ask bounce associated with trading activity. This paper provides evidence that bid-ask bounce also explains part of the observed intraday behaviour in price volatility.",
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Stock market closure and intraday stock index futures market volatility : "Contagion", bid-ask bias or both? / Fong, Kingsley; Frino, Alex.

In: Pacific-Basin Finance Journal, Vol. 9, No. 3, 06.2001, p. 219-232.

Research output: Contribution to journalArticleResearchpeer-review

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