Return volatilities of stock index futures in Hong Kong: Trading versus non-trading periods

Gordon Y N TANG*

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    1 Citation (Scopus)


    This article examines two hypotheses about return volatility on the Hong Kong stock and index futures markets. The "noise trading" hypothesis suggests that volatility is higher during trading hours than when the market is closed because of trading by uninformed "noise" traders. The "wait-to-trade" hypothesis holds that volatility will be higher in a stock index futures market than in the underlying index, because of the delay between the time new information becomes available and the time it enters the index because a stock trade occurs. The study is interesting not only because Hong Kong is one of the most important emerging Asian markets, but also because it has a different market microstructure from the U.S. market. Our results show that the measured volatility of the Hang Seng cash index is less than that for the stock index futures in all intraday periods, as well as daily close-to-close, except during the lunch break. For both markets, volatility is higher in trading periods than in non-trading periods, although volatility during the lunch break is less than that during the official overnight close when some constituent stocks continue to trade in the London market. Furthermore, nighttime volatility drops dramatically on days the London market, but not the Hong Kong market, is closed. Hence, our empirical results support both hypotheses.

    Original languageEnglish
    Pages (from-to)55-62
    Number of pages8
    JournalJournal of Derivatives
    Issue number1
    Publication statusPublished - 1 Sept 1996

    Scopus Subject Areas

    • Finance
    • Economics and Econometrics


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