TY - JOUR
T1 - Return volatilities of stock index futures in Hong Kong
T2 - Trading versus non-trading periods
AU - TANG, Gordon Y N
N1 - Copyright:
Copyright 2017 Elsevier B.V., All rights reserved.
PY - 1996/9/1
Y1 - 1996/9/1
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=0010631679&partnerID=8YFLogxK
U2 - 10.3905/jod.1996.407961
DO - 10.3905/jod.1996.407961
M3 - Journal article
AN - SCOPUS:0010631679
SN - 1074-1240
VL - 4
SP - 55
EP - 62
JO - Journal of Derivatives
JF - Journal of Derivatives
IS - 1
ER -