TY - JOUR
T1 - Stock market closure and intraday stock index futures market volatility
T2 - "Contagion", bid-ask bias or both?
AU - Fong, Kingsley
AU - Frino, Alex
PY - 2001/6
Y1 - 2001/6
N2 - 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.
AB - 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.
KW - Bid-ask bias
KW - G14
KW - Hong Kong
KW - Market microstructure
KW - Stock index futures
KW - Volatility
UR - http://www.scopus.com/inward/record.url?scp=0042872981&partnerID=8YFLogxK
U2 - 10.1016/S0927-538X(01)00007-5
DO - 10.1016/S0927-538X(01)00007-5
M3 - Article
AN - SCOPUS:0042872981
SN - 0927-538X
VL - 9
SP - 219
EP - 232
JO - Pacific-Basin Finance Journal
JF - Pacific-Basin Finance Journal
IS - 3
ER -